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More reliable life insurance would mean higher premiums

Last updated 05:00 18/06/2017


Attach your medical notes to your insurance applications, if you want to be sure you have cover.


Personal insurance like life, health and trauma cover would cost more, if the risk of insurers declining claims for "non-disclosure" was reduced.

New Zealand lags Britain and Australia in passing laws to reduce the likelihood of people paying premiums for years for policies unlikely to ever pay claims.

That's because it is so easy for members of the public to fail to tell an insurer something a "prudent underwriter" would want to know when they apply for their cover, such as forgetting to mention a medical condition they once suffered from.

Insurance and Financial Services Ombudsman Karen Stevens deals with a lot of complaints involving claims turned down for "non-disclosure".


If that's discovered at claims time, insurers have the legal right to decline the claim, and tear up the policy.

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Karen Stevens, the Insurance and Financial Ombudsman, says in over a decade of handling complaints against insurers, declines as a result of accidental non-disclosure have remained stubbornly high.

New Zealand has not collected figures from insurers on how many claims get turned down each year for non-disclosure.

There's a simple fix Stevens advocates, but insurance companies say it would push up the price of insurance as it would increase the work they have to do, and the claims they have to pay.

Steven's fix is for everyone to start attaching their medical notes to insurance applications so the insurer is "on notice" of applicants' medical history.

The onus would then be on insurers to check them, which would require insurers to put more resources into checking applications.

Currently, on many commonly sold policies, insurers only routinely check people's medical history when a claim is made.


"We are up front in telling people to provide their medical records with their application," Stevens says.

"Most of the underwriters who hear me say this cringe."

The current practice creates an "inherent danger" of non-disclosure, Stevens says.

That's because ordinary people are "usually unaware they have a duty to disclose all material information and unaware of the extent of the duty", she says.

Stevens says insurers have to contend with many people who do not want to have to fill in long insurance forms, or read policies.

Stevens has been lobbying for law changes to make things fairer for policyholders, and earlier this year, her calls were boosted by a call from the OECD for New Zealand to better regulate the conduct of insurers.

That appears to have prompted a review of the Insurance Contracts Act next year by the Ministry of Business, Innovation and Employment could see insurers forced to lift their game.

It would come twenty years after the Law Commission criticised the unfair legal duties loaded onto New Zealand insurance buyers, which expected the public to know what a "prudent underwriter" would need to know in assessing their application for insurance.

Since the 1998 Law Commission report, New Zealand has had four prime ministers, six elections, and as nobody collects the figures, an unknown number of insurance claims declined as a result of accidental non-disclosure.

New Zealand is likely to follow the British model of insurance reform, Commerce Minister Jacqui Dean indicated to

Sickened by century-old draconian disclosure laws, British MPs took action in 2012 passing the Consumer Insurance Act.

Key to the reforms, which came in in 2013, was ending the "prudent underwriter" duty on ordinary people that was an exact parallel to New Zealand's.

Like the Law Commission in 1998, British MPs felt it was unfair to expect the public to know what a prudent underwriter would want to know, and decided to put more onus back onto the insurers to ask questions to get the information they needed to know.

The new duty in Britain is for people to take "reasonable care not to make a misrepresentation", and one of the factors to be taken into account is whether or not the questions asked of them at policy inception were clear and specific.

That's meant insurers are now being careful to ask the right questions, which it is hoped will lead to far fewer incidents of non-disclosure.

- Stuff

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