A South Auckland crane driver has been denied a $100,000 payout for his gastric cancer after a government-owned finance company switched his policy.
His wife is furious that on the basis of what she says is a salesperson's garbled pitch - and despite recent official warnings to the insurance industry about its practice of "churning", or replacing old policies with new ones - her family of three children has now been pushed to financial breaking point.
"That could have helped raising my children," said Shirley Farani, 40, who kept her job in finance and accounts throughout the pandemic levels, working from home while also looking after Ailepata Ailepata, who's 43, who has been off work for four months.
"It's very distressing and very frustrating," she said, adding paying school expenses had been hard.
The family, who live in Māngere Bridge, had paid for life and trauma insurance cover from Westpac since 2013.
When, in 2018, they inquired about a mortgage with government-owned New Zealand Home Loans, an agent visited their home.
He suggested changing insurers. They did, but ended up with less cover.
A series of official investigations into financial company practices found churn was occurring, and was risky.
"We saw evidence of ... policies being 'churned', ie, customers being sold new policies that are not in their best interests so the salesperson can earn a commission," the Financial Markets Authority and Reserve Bank said in early 2019.
A law change due next year is aimed to combat this.
The Farani-Ailepata family's lawyer said he would be filing court action against their insurer.
New Zealand Home Loans said it was now reviewing their case.
'I was shocked'
Farani recalled meeting with the mortgage broker in February 2018, who raised insurance right at the end - that it was rushed, garbled and the sign-up process was incomplete, though Ailepata's signature is on an application declaration.
They thought having their insurance with their mortgage provider might make sense, she admitted.
The new policy provided just $100,000 trauma cover, half of the $200,000 they had under Westpac.
She found that out when she made a claim for the gastric cancer, she told RNZ.
"I was shocked. There was no cover discussed because someone was going to come back and discuss the rest of the application."
A form the agent signed, seen by RNZ, justifying selling them replacement insurance, shows the new life cover he sold was lower than they already had - $400,000 against $500,000 - and the premiums higher - $677 against $500. It does not mention Westpac's trauma cover.
The agent gave, as a reason for the change, both that the policy owner's needs "had changed" - but also that their needs "have not changed but the new insurer offers better service".
The agent wrote the premium was "better".
He failed to declare on the form whether he had provided advice about the benefits of changing insurers, or not.
An FMA review of 24 advisers in 2018 found half were not aware of their legal obligation to exercise care, diligence and skill, or were in breach of it; and that the advisers as a whole were bad at keeping records of advice and conversations with clients, though these were "essential".
Farani said they requested to see all the records from the agent, but only got a few.
Worse was to come, when the cancer claim was declined.
The insurer ruled they had not disclosed Ailepata's "impaired glucose tolerance" at the time the policy was churned.
The FMA noted in its 2019 inquiry: "Risks for customers from churn include the increased likelihood of exclusions or limitations associated with changes in health that have occurred since the original policy was taken out."
The couple say they told the agent about Ailepata developing low-level blood sugar problems in 2017.
An email from a GP, whose practice the family goes to, released by the family's lawyer to RNZ, said he fully supported them; the GP noted it was very common for patients not to understand their exact condition, especially when no treatment was offered, as in this case, and moreso for people with English as a second language.
The FMA inquiry found "limited evidence of products being designed and sold with good customer outcomes in mind, and very little in the way of policies for identifying and dealing with potentially vulnerable customers".
Their lawyer questioned why the insurer did not seek a blood test from Ailepata before agreeing to the cover.
No advice from us - insurer
Farani challenged the no-payout decision.
She was told by New Zealand Home Loans Life to take it up with Fidelity Life, as it turned out their policy was a Fidelity product, bearing New Zealand Home Loans Life branding.
But Fidelity said it did not give insurance advice to anyone.
"Fidelity Life is not part of the advice process - independent financial advisers and strategic alliance partners [such as NZHL] are responsible for the advice they provide to customers," it told RNZ in a statement.
New Zealand Home Loans is wholly owned by the government via the NZ Superannuation Fund, ACC and NZ Post, and the NZ Superannuation Fund has a cornerstone 41 percent stake in Fidelity
"I was shocked ... this was never expected to come from a government-owned entity, letting us down," Farani said.
"I just felt betrayed."
Their appeal ended up going "to and fro", she said.
Her lawyer Tim Gunn weighed in: "The government needs to and has indicated that it will amend the law in relation to disclosure.
"Therefore, I do not understand why a government-owned entity ... can continue to decline policies on the basis of innocent non-disclosure."
The FMA found that non-disclosure was the most common problem between insurers and customers.
As things stood, agents had an incentive to send in "clean" applications that would be readily accepted by the insurer, as ones "loaded with medical issues" would attract higher premiums which the customer might balk at, jeopardising the commission payout, Gunn said.
The law, even as it was, made clear the agent or adviser selling a particular product, acted for the insurer, in this case Fidelity, rather than being "independent", he added.
The Bill to enforce better conduct by insurers is at the select committee stage of Parliament.
The new regulatory regime "has been designed in response to recent reviews that have identified that certain institutions, particularly banks and life insurers, lack focus on good outcomes for customers and have ineffective systems and controls to identify, manage, and remedy conduct issues", its preamble says.
Both New Zealand Home Loans and Fidelity Life refused to be interviewed by RNZ.
Fidelity said it preferred to deal with the family and was in ongoing discussions with them and their lawyer.
Farani disputed that.
"What discussion did we have? I've never heard from them since December last year when they declined my claim."
The chief executive of New Zealand Home Loans, Aaron Skilton, contacted the Farani-Ailepata family two days after RNZ asked the company about their case.
They would conduct a full review of what the company did in securing the insurance with Fidelity, and the outcome of the cancer claim, he said.
"We continuously strive to provide good customer outcomes.
"We will be assuring the Ailepatas we will treat the situation with expediency, care and consideration," Skilton said in a statement.
Fidelity Life said it was a strong supporter of good conduct because "it's the right thing to do for our customers" and would build trust.
Its products were sold by a network of independent financial advisers and partners, it noted.
It did not give advice, but did have a process that "requires advisers to take customers through the risks that are involved when replacing their insurance".
"Our application forms also include a warning to customers not to cancel existing insurance until they have given full disclosure."
It was in touch with the Farani-Ailepata family, and noted they could appeal to the Insurance and Financial Services Ombudsman.