Insurance professionals know that medically underwritten rates and policy exclusions are essential to the availability and affordability of travel insurance and other health insurance products. However enforcing these coverage terms often leads to accusations of hiding behind the small print to avoid paying claims. Indeed when a claim is denied based on exclusion or a failure to disclose material information during the application process policyholders seldom agree with the decision.
They might react by contacting the media filing complaints with insurance regulators and sometimes initiating legal proceedings. These are uncomfortable situations for any insurance carrier broker or health plan particularly because of the damage they can cause. One suggestion to minimize the risk of this happening is to review your sales or enrollment process and ensure that it includes mandatory notices to make applicants aware of and accept the limitations of the policy.
This is by no means a novel idea but the denial of some claims for these reasons and the consequences for policyholders are recurring themes in the insurance industry. Therefore taking a few moments to review a few fundamental concepts can be worthwhile. It is also relevant to keep in mind the complexity of the different distribution channels the ripe age of many applicants and the numerous intermediaries that are often involved opportunities for miscommunication abound and the vast majority of insurance litigation cases include a component related to events that occurred at the time of sale.
Purchasing travel expatriate or other types of health insurance can require detailed answers to medical questions for some applicants depending on age and health. While most applicants understand the importance of obtaining coverage for medical emergencies before travelling many do not realize the severity of their duty to disclose accurate information when applying for insurance.
This situation can lead to omissions on application forms and consequently invalidate the corresponding insurance policies. When this happens the results can seem unfair and extreme to the policyholder particularly at time of claim. But this general rule about disclosure is a fundamental principle of insurance and can easily be explained to applicants: in order to effectively calculate risk insurance companies must be able to rely on the information they obtain during the application process and applicants are therefore responsible for providing complete and accurate information.
If they do not fulfill this obligation the insurance company is not obligated to fulfill the contract of insurance which it would not have issued under the same conditions if the applicants disclosure had been complete.If a retroactive premium adjustment were the only consequence for misrepresenting relevant information on a health insurance application there would be an incentive to withhold or misstate facts when applying for coverage.
Everyone would qualify for the best plan by withholding relevant information knowing that in case of a claim they would simply need to make an additional premium payment. This would be like applying for insurance after experiencing a loss and it would prevent insurance companies from effectively calculating risk. They would be unable to collect enough premiums to pay for claims and it would ultimately lead to insurance coverage becoming unavailable.
As for exclusions which specify events or circumstances that result in there being no coverage they are necessary and enforceable because they ensure that coverage is available and affordable for all situations that are not excluded.For these reasons insurance companies verify the answers provided on applications for insurance and the law in most jurisdictions allows them to void the insurance policy when the application contains a material misrepresentation.
For certain types of coverage (e.g. travel insurance) this verification is done when a claim is received as it would be impractical or impossible to do so during the application process. The cost of doing so for every application could also make coverage much less affordable and the applicability of exclusions to the facts of a claim can only be verified after the claim has been made. Nonetheless in the vast majority of cases the verification confirms that the application is complete and accurate the policy is valid and the claim is payable.
But when the information disclosed on the application is materially different from the insured persons medical records or when an exclusion is triggered by the circumstances surrounding the incident the claim will be denied. The resulting consequences can be devastating especially because of the incredible costs often charged for healthcare services.To minimize the risk of this happening we must strive to produce clear application forms and eliminate the possibility of innocent misrepresentations.
We must provide ongoing product training to our distribution networks and emphasize the importance of accurate and complete disclosure to applicants. Warnings about the consequences of misrepresentation should also be prominently displayed on application forms and other insurance material. Finally we must ensure that applicants are instructed to read their policy and pay particular attention to the limitations and exclusions.
Misrepresentations and the resulting denial of claims will inevitably continue to arise but continually raising awareness of this issue will surely have a positive impact. Encourage your distribution networks to tirelessly spread the message to applicants: make sure you disclose all relevant information accurately and completely when applying for travel or health insurance if you are not sure about what to answer do not take a chance ask your doctor!
About the Author
Paul Reed is Legal Counsel for GlobalExcel.
