9 minute read
INSURANCE
INSURANCE By Steve Wright
KEEP AN EYE ON SPECIFIC EXCLUSIONS
Is health insurance general exclusions a trap for the unsuspecting? Steve Wright tells us more.
Exclusions are the evil twin
of benefits. Exclusions are instances when, despite the benefits provided, no claim is payable.
Understanding any exclusions present in a policy is as important as understanding the benefits. There are two broad types, general exclusions and life assured specific exclusions (specific exclusions): ➜ General exclusions are provided for in the policy and they apply automatically to every life assured under that policy.
No special terms are issued in respect of general exclusions because they are already catered for in the policy wordings. General
Exclusions apply forever, even if the condition arises after policy issue. ➜ Specific exclusions only apply to that specific life assured and are agreed to by the life assured (by the acceptance of special terms issued by the insurer) as part of their application for cover. Specific exclusions are not provided for in the policy wordings they arise out of and are usually determined as a result of the underwriting process. Specific exclusions do not apply unless the condition is present at the time of policy issue.
While specific exclusions do usually get the attention they deserve from advisers, general exclusions typically do not. Appropriate general exclusions will always be necessary to the longterm sustainability of insurance, but advisers cannot simply ignore them. This is particularly true of health insurance, where exclusions are many and often vary between providers.
Health Insurance comes with a long list of general exclusions, many of which are typically common across the range of providers in New Zealand, for example, acute medical treatment; experimental treatment, treatment for mental illness and HIV/Aids, and treatments which are not medically necessary.
Informing clients
There is not much advisers can do about general exclusions that are common to all providers and accordingly, aside from informing the clients about them, there are few compliance or advice concerns. However, significant general exclusions are also imposed by some providers – but not others – and these create a potential compliance danger and advice issues for advisers, because alternatives do exist. In some cases, general exclusions may actually impose important obligations on advisers.
Unfortunately, neither of the three product rating services deal with exclusions in a particularly helpful way or even at all (which is surprising considering how very important exclusions are) so advisers really should take care to understand the exclusions in the various health providers’ policies. The very medical condition of concern to your client may, in fact, not be covered.
General exclusions to watch out for:
Advisers should be particularly aware of general exclusions that are not universally applied by all providers, for two main reasons. The first is because, in the absence of terms removing them, general exclusions will automatically apply to all clients and the second is because alternative providers, which do not include a general exclusion, may well be a better option for the client.
Life assured
It is worth remembering that providers which do not have a particular general exclusion, can still apply a specific exclusion, but this only applies to the specific life assured, will not apply to future health conditions arising (locks good health in), and is only imposed if the client agrees (usually during application or once special terms are issued). A few examples of general exclusions that are not universally applied follows, but this isn’t an exhaustive list: ✚ Allergies: It seems to me that severe allergies are becoming more and more common, particularly in children, so this exclusion will be of
particular concern to younger clients planning on having children. How much, if anything, will a provider pay towards treatments, specialists’ consultations, and tests? ✚ Congenital, hereditary or genetic condition: Most providers exclude congenital conditions, but how is “congenital condition” defined in the policy, if at all? Some providers do not define it, which means medical treatment for a condition present at birth, even if unknown, will be excluded forever. Some providers restrict the meaning of “congenital” by defining it in a more limited way. ✚ Familial predisposition or familial risk: The risks of suffering some medical conditions are increased if there is a predisposition to it in the family. This exclusion presumably means that conditions which “run in the family” are excluded, even if your client does not have the condition or is unaware of the risk, at application time; ✚ Non-Pharmac drugs: While several providers now cover some non-Pharmac funded drugs, many providers still only provide limited cover or impose conditions and restrictions. All other cases are however excluded. This leaves clients potentially vulnerable to the very high costs associated with non-funded drugs, depending on the condition they suffer or where the treatment is received;
✚ Pre-existing conditions: More on this below; ✚ Preventative treatment: Costs of preventative screening tests, where no symptoms are present, are usually excluded, although some providers do now offer modest amounts to help offset the costs of preventative screening done privately; ✚ Also look for general exclusions
for breast reconstruction/reduction, weight loss or bariatric surgery, sleeping disorders, Cystic Fibrosis and Renal dialysis, among others.
Advisers should carefully examine exclusions in the various providers’ policies to identify areas of concern to them or their clients.
What happens when standard-rates, without special terms, is not good enough?
Some providers exclude pre-existing conditions. A “pre-existing condition” is any medical condition that exists before the insurance cover is issued. It is usually defined in the policy wordings very broadly and without limit to include every medical condition, including conditions for which medical advice or treatment should have been sought but wasn’t!
This general exclusion might be expected if there is automatic acceptance at application time, but what if this is included for policies where health is assessed (medically underwritten)? It seems to me the obvious danger is that: ● Clients and advisers will mistakenly believe the absence of special terms will mean pre-existing conditions are covered (when in fact they are not); and ● Providers which do not generally exclude pre-existing conditions and which might issue a specific exclusion, will be regarded as “harsh” (when in fact they are not).
When recommending providers whose products include a broad general exclusion of “pre-existing conditions”, advisers must make it clear to clients that none of their preexisting conditions are covered!
At least one provider excludes pre-existing conditions unless they are disclosed and accepted as covered in writing by the provider. Aside from the negative impact on clients’ cover, what additional compliance and administrative burdens does this exclusion impose on advisers? ✚ Conditions
Does the exclusion mean advisers must scrutinise the issue of every policy and then negotiate which disclosed conditions are to be covered in writing? Does it mean every policy issued without special terms, accepting pre-existing conditions disclosed, must be questioned?
I think a general exclusion of pre-existing conditions, on policies where an applicant’s health is assessed, may very well create a duty on advisers to negotiate with the insurer for special terms to remove the application of the exclusion for less severe pre-existing conditions. After all, surely the right outcome for the client is that only pre-existing conditions worthy of exclusion are actually excluded? ✚
Steve Wright has qualifications in Law, Economics, Tax and Financial Planning and is General Manager Product at Partners Life.
This article is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product.
Market News By Sharon Davis
Flat reverse mortgage market leaves room for growth
The study, supported by
New Zealand’s Safe Home Equity Release Plans Association (SHERPA), found New Zealand’s reverse mortgage market comprised 5300 loans, with a total book of $444 million as at 31 December 2013, compared with 6878 loans valued at $430m at the end of 2008 and 6613 loans valued at $447m at the end of 2009.
Rob Dowler, executive director of SHERPA, says: “The market size is on a par with pre-GFC levels, while the size of each borrowing has increased the number of both borrowers and settlements is significantly down. This is largely due to fewer lenders offering the product for sale.
“However, things are beginning to change. At SHERPA we are fielding more interest in the product from potential borrowers and lenders. As the drag on growth caused by uncertain and pressured global business environment begins to ease, we think the home equity release market will pick up along with the need for new business opportunities.”
Deloitte partner James Hickey says: “Total repayments, both full and partial, this year are 14% p.a. of outstanding loans, with the majority due to voluntary repayment and sale of property.
“This shows that a reverse mortgage is not a ‘set and forget’ product but it is actively used by its borrowers to primarily fund the first stage of their retirement.”
The study found that more than half of reverse mortgage borrowers in New Zealand were couples, borrowing on average $10,000
The reverse mortgage market has been stagnant since the global financial crisis, according to a study of the New Zealand reverse mortgage market.
more than their single counterparts, with a number of new borrowers being early retirees between the age of 65 and 74.
The top use for a reverse mortgages was debt repayment, which is almost doubled year-on-year, followed by home improvement and travel, says Hickey. “These are positive responses and show that the product can really add value to retirees when used responsibly and supported by appropriate advice.”
North Island has the highest number of reverse mortgagees at 81%, with Auckland at 14% being the major location. This is up by 20% from 2010 when South Island had a 39% share, now down to 19%. Two thirds of the loans - 66% - are outside the major metropolitan areas, especially in the North Island.
Year-on-year Reverse Mortgage Statistics
Dec-07 Dec-08
Outstanding Loans $365m $430m
Number of Loans Average Loan Size
6549 $55,745
6878 $62,516
Settlements Facility (settlements) Additional Drawdowns Discharges $106m $201m $28m $26m $36m $37m $18m $36m
Dec-09
$447m 6613 $67,667 $16m $16m $15m $47m
Dec-10
$469m 6484 $72,366 $18m $19m $13m $42m
Dec-11
$474m 6186 $76,556 $14m $14m $10m $56m
Dec-12
$463m 5728 $80,781 $13m $16m $8m $63m
Dec-13
$444m 5338 $83,229 $8m $13m $5m $61m
Loan Use
Debt Repayment Home Improvement Travel Car Aged care purposes Gifts Other/Unassigned
Use 2012
14% 20% 11% 10% 7% 3% 35%
2013
22% 18% 10% 7% 5% 3% 35%
Tune into mortgagerates.co.nz for the latest update on home loan news and information. Each Monday morning you can listen to a broadcast from TMM editor Philip Macalister reviewing and commenting on the latest news.
Besides giving you a good snap shot on what is happening in the market there Philip provides you with his comments and observations about what's happening and who is doing what.
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