Our insurance watchdog has blasted local firms for declining claims on technicalities, including in some cases saying a lack of disclosure on one complaint meant a separate issue was not covered.
Insurance and Savings Ombudsman Karen Stevens says New Zealand law offers customers less rights than they may expect. Insurers can "treat the contract like it never existed" when seemingly irrelevant details are dug out of a claimant's medical history.
"There are times when you think: 'This is really awful. This person is in a ghastly situation'. But we have to have regard for the law," Stevens says.
"We can't say: 'We're not going to apply the law because we feel sorry for this person and we don't think it's fair'."
Stevens warns policyholders to check the fine print - or end up paying expensive bills from their own pockets.
Stevens says that, hypothetically, a claim for knee reconstruction surgery can be declined if the claimant failed to disclose they once talked to a doctor about recurring headaches.
She wants New Zealand regulations tightened, to follow Australia and Britain.
Stevens' comments follow a Consumer survey which named Accuro Health top insurer for cover and price. Consumer says it can't recommend the Southern Cross policy for hospital and surgery because the cover is "one of the most limited".
Stevens says another common pitfall is changing policies without realising that cover for newer problems is forfeited.
It can be tempting to change when a salesperson offers a "better" or cheaper deal. But many forget that a younger person taking out health insurance will have few "pre-existing" exclusions - but these benefits may be lost when changing to a different provider 10 years later.
Worse, the person switching providers may not realise the importance of disclosing seemingly minor issues that have since developed - jeopardising their cover down the track. "Most people would never shift policies if they knew there was this risk," Stevens says.
She adds that when a contract is deemed void through non-disclosure, the customer will rarely be refunded the premiums they were paying over the years for the "invalid" policy. "That doesn't sit very well with us," Stevens says. "We have raised it with the companies and said we don't think it's fair."
Roger Styles, chief executive of industry group Health Funds Association, says the 30 to 40 cases that go before the ombudsman each year are a small number considering the size of the industry. He recommends customers speak to their insurer, before problems arise.
Insurance company eased stress of cancer battle
Two tumours were found on Gail Sperry's ovaries in 2007 and doctors told her the odds of survival were around 3 per cent.
One tumour weighed 2kg, the other was the size of an avocado.
With a long waiting list for public health treatment, Sperry, now 63, says she was relieved she had kept up with her health insurance premiums, around $100 a month at the time.
Her provider, Accuro, covered the $30,000 cost for urgent surgery at a private hospital. She will soon have another operation, for a side-effect of chemotherapy, and insurance will meet the $17,000 cost. In the meantime, she's free to enjoy the travels she has long dreamed of.
"It has prevented me from financial stress. I would have had to mortgage my house," Sperry says.
"Five years on, I have been cleared of ovarian cancer. I cannot speak highly enough of Accuro for their ability to assist me."
Accuro general manager Kelleigh Aston says New Zealand has a public health system but insurance provides fast access to medical care for procedures deemed "non-urgent".
"It removes the nasty choice of waiting on a list for elective treatment or paying for private health care yourself, which can be expensive."