Insurance isn't always fair and there's real danger ahead each and every time you apply for a policy that covers your health in any way. That's travel, income protection, mortgage protection, trauma/critical illness and other policies.
Too many Kiwis have their claims turned down because they don't understand what they've signed up for. One of those blatantly unfair clauses in insurance is non-disclosure of pre-existing conditions.
A classic example is a case heard by the Insurance & Financial Services Ombudsman. John had a stroke but had his critical illness claim declined because he hadn't disclosed information about renal function tests and drug and alcohol use when he first applied for insurance. He probably didn't see these as relevant, but an insurer would say they were "material" in deciding whether to offer cover in the first place.
In another case heard by another dispute resolution service, the Financial Services Complaints Limited, a couple were aware that the husband had a heart murmur but didn't realise it was material.
When the husband had a heart attack before travelling, his insurance company refused to refund the holiday on the basis of non-disclosure of this pre-existing condition.
Most ordinary Kiwis don't understand how this all works until it's too late, says ombudsman Karen Stevens. Claims turned down for non-disclosure can ruin people's lives.
It really hit home to me a few weeks back when despite all my insurance knowledge I honestly struggled to answer an insurer's questions. What had I been to the doctor for in the past two years? Apart from a bad case of hypochondria, which turned out to be a minor allergy, I can't honestly remember.
It's not just travel insurance - what if your income or mortgage protection insurance doesn't pay out, after all those years of paying the premium? That could mean losing your home.
Insurance companies need to know about your pre-existing conditions to assess the risk and set a fair and reasonable premium for both sides.
Certain insurance terms such as non-disclosure are exempted from the Fair Trading Act.
The good news is that the Ministry of Business, Innovation and Employment is in the middle of reviewing New Zealand's insurance contract law and non-disclosure is one of the issues under the microscope. The laws behind non-disclosure used by New Zealand insurers are more than 100 years old and it's time for change.
Unsurprisingly, MBIE's review has found that Kiwis just don't get it and the consequences of not disclosing can be very harsh.
The results of a Colmar Brunton survey by MBIE found that of respondents who had a claim denied or reduced, 15 per cent said the reason was that they hadn't told the insurer information that the insurer thought they should have.
About 10 per cent of complaints to the Insurance & Savings Ombudsman Scheme involve people who have insurance claims declined, or their entire policy "avoided", which means treated like it never existed, because they left out information on the insurance application.
MBIE outlines three options, each of which would be fairer regarding non-disclosure because they take into account that people are human and may not have the same level of understanding as a doctor or insurance underwriter.
• Replace the duty of disclosure with a duty for consumers to take reasonable care not to make a misrepresentation. Insurers would be judged on the clarity of their questions.
• Duty to disclose what a reasonable person would know to be relevant. The duty would be to disclose information that the consumer knows, and that a reasonable person in the circumstances could be expected to know, to be a relevant matter to the insurer in making a decision to accept the insurance.
• Require life and health insurers to use medical records to underwrite. This would only address non-disclosure in relation to personal insurance products like health, income protection, life and trauma insurance.
The existing laws are old and legalistic. The idea is to make insurance law more consumer focused, which would certainly save many Kiwis from the proverbial hitting the fan when they make totally innocent mistakes.