The Impact of Disclosure
- Posted by Roger Hendricks
- On 08/04/2015
- 0 Comments
Why is disclosure so important to ensure claims are paid in full? Dalene Allen, underwriting expert and co-founder of specialist long-term risk cover provider, Altrisk, answers this underwriting question brokers often grapple with.
Disclosure is probably the single most important factor in ensuring a good claims experience. In fact, non-disclosure is often the reason for claims being rejected or the claim payment amount being less than expected.
According to the Life Ombud, non-disclosure “is shorthand for a misrepresentation by the applicant for insurance, be it by conduct or silence, about any circumstance that would be material to the assessment of the risk”.
It is seen in the same light as mis-disclosure – the provision of false information – whether it’s incidental or deliberate. The argument is that in signing the application form, the client accepts responsibility for the information provided and excluded.
Dealing with non-disclosure
Non-disclosure is governed by the Long-term Insurance Act, which, in Section 59 1b, provides: “The representation or non-disclosure shall be regarded as material if a reasonable, prudent person would consider that the particular information… should have been correctly disclosed to the insurer so that the insurer could form its own view as to the effect… on the assessment of… risk”.
Non-disclosure is generally only discovered during a claim assessment. It results in a reassessment during which the underwriter reviews his or her original decision to see whether the information that has come to light is material and if a reasonable, prudent person would have supplied it.
This places the underwriter in a difficult position because hindsight is 20-20 vision and the review needs to be done with integrity. For objective insight, it is a good idea to call on other underwriters and reinsurers to assess the case as if it is an application rather than a claim.
Most service providers base their reaction to non-disclosure on guidelines published by the Life Ombud. Altrisk takes the following approach:
• If the non-disclosure would not have changed the underwriting decision, then it is not taken into account.
• Non-disclosure which would have changed the underwriting decision, but which is not relevant to the cause of the claim, results in the entire policy being re-rated to reflect the terms that would have applied had the information been disclosed. A penalty of 10% of the revised sum insured is deducted and the claim is then assessed using the revised cover amount.
• If there was material non-disclosure and it was relevant to the cause of the claim, then no claim is admitted.
The importance of good advice
Clients have a legal duty to disclose complete and accurate information, because it affects the risk assessment, the premiums charged and the terms and conditions of the final contract.
They are often unaware that they need to provide all information that could affect the risk assessment and should be told that responding to the underwriter’s questions may be insufficient. They also need to understand the impact of non-disclosure, which is why service providers should publish information on how they handle non-disclosure.
In bringing this aspect of life insurance to attention of clients, a well-informed financial advisor can have a positive impact on both the individual concerned and the industry.