This week has seen insurance giant Momentum in the hot seat as debate sparked around its initial refusal of a R2.4 million life insurance pay-out. The deceased was killed in a hijacking but lost the right to claim upon failing to disclose a raised blood sugar condition at the inception of the policy, in 2014. Momentum has since agreed to the pay-out.
While Momentum has subsequently also created a solution regardless of previous medical history that affords a sum equal to the death benefit in case of violent crime, the question begs: Who is at fault?
“Diabetes is a big no in the insurance risk space. This because it often leads to other illnesses and raises the risk of claiming for dread and disease,” adds head of Insurance Busters, Will Keevy.
Failing to disclose information like this when completing the policy application not only leaves the policy holder open to the risk of claim rejection but also exposes the insurance provider and ill-prepares the provider to cover any associated risk.
Despite this public outcry raising necessary conversation, Keevy says it has been wrongfully directed.
“The conversations we need to have around this case have nothing to do with the death or the medical condition. The real conversation should focus on the potential of the claim. Would the policy exist had the deceased disclosed his condition? Would Momentum even have taken the risk on board? What went wrong during the underwriting process at the inception of the policy?” Keevy adds.
While there are instances where insurance providers have chosen to take on the risk of diabetes, this typically happens at a higher price. “Often if providers choose to take on individuals with pre-existing conditions like diabetes the premiums almost double in price,” says Keevy.
While this may encourage you to not disclose any such information, this non-disclosure not only leaves the individual exposed, but also prevents the insurance provider from assisting you when you need it most. Full disclosure is necessary for an insurer to assess the risk and price it accordingly so that provision can be made for any future claims.
“The importance of full and honest disclosure at application stage cannot be overemphasised. The only time your health status matters, is when you apply for cover. This is when you need to share all your medical and health information for your own benefit,” Momentum states.
Where it all went wrong
“There are two types of underwriting processes. One occurs during the policy application process and the other during the claims process,” Keevy explains.
This involves the insurer engaging the policy holder or potential policy holder on a series of questions intent on assessing the risk of insuring that person. It is always advisable that this process takes place at the inception of the policy as this ensures that everyone is covered in the event of a claim.
“While Momentum was technically fully within its right to deny the claim on grounds of non-disclosure it was also the company’s responsibility to ensure that a thorough job was done at underwriting level. This was also a replacement policy, meaning there was previous information to reference, information that Momentum was privy to. If the family claiming had made use of a broker, it is jointly the responsibility of the insurance provider, broker and policy holder or potential policy holder to ensure that the necessary information is provided and is accurate,” Keevy says.
What happens now?
Momentum has issued communication that makes provision for all existing as well as future life cover clients.
Key points to take note of:
- This pay-out will be fully funded from Momentum’s profits and not from clients’ premiums;
- The guarantee will pay out when the death was a direct result of violent crime, even when medical non-disclosure information impacts the legitimacy of the contract;
- The pay-out is not in addition to the normal death benefit. It only applies in circumstances where the death benefit will not be payable or has been reduced;
- Momentum reserves the right to reject any fraudulent claims.
“The guarantee will apply immediately to all our life cover clients and will be applied retrospectively. We are identifying clients who were impacted in this way and we will contact their families to arrange payment,” Momentum stated in its most recent press release.
Who will end up paying for this?
Momentum has stated that these pay-outs will come from its profits, however this may inadvertently affect policy-holder’s premiums across the board.
“There is no such thing as out of pocket. This decision could very well force Momentum to increase its rates soon,” Keevy adds.
How can you avoid this?
The importance of full-disclosure when it comes to your insurance policy can not be stressed enough. At the end of the day the responsibility to be truthful lies with you.
In addition, ensuring the medical section specifically is dealt with properly during the underwriting process is essential. Where possible insist on being walked through the process personally by the insurer so you are assured that it has been done properly. This also allows you to ask any questions you may have directly.
“This decision is more window-dressing and will unlikely make a significant difference to the claims ratio, but it has done well to draw attention to the importance of full-disclosure on a large scale,” Keevy adds.