Non-Disclosure Tops Life Insurance Complaints


Non-disclosure was the top complaint issue for health, life and disability insurance-related complaints made to the Insurance & Financial Services Ombudsman Scheme (IFSO), in the year ended 30 June 2018.

The IFSO received the highest number of complaints in nearly 20 years, it revealed in its 2018 annual report, investigating 320 complaints and receiving 3,357 complaint enquiries in 2017-2018.

It attributed the rise in complaints to possible increased awareness among consumers about its service and the right to complain about insurance or financial services.

Of the total complaints made, 31% were related to health, life and disability insurance, of which the top three complaints issues included:

  1. Non-disclosure (28%)
  2. Scope of cover (20%)
  3. Policy exclusion (12%)

For complaint enquiries, 16% related to health, life or disability insurance and the top three complaint enquiry issues in this category were:

  1. Premiums
  2. Scope of cover
  3. Cancellation of contract or lapse
Commerce and Consumer Affairs Minister, Kris Faafoi

Commerce and Consumer Affairs Minister, Kris Faafoi, put a review on insurance contract law into motion in March (see: Review of Insurance Contract Law Begins…).

The issue of people unintentionally leaving out information from an application and then finding out they will not be receiving a claim because of non-disclosure was one of the reasons for the review.

Chatswood Consulting’s, Russell Hutchinson, also spoke out on complications around non-disclosure last week (see: Industry Stakeholder Slams Biased Coverage of Insurance Claim).

Insurance & Financial Services Ombudsman, Karen Stevens, says she fully supports the Government review and wants to see a law change in relation to non-disclosure.

Insurance & Financial Services Ombudsman, Karen Stevens

“Non-disclosure means nothing to a consumer until he/she makes an insurance claim, only to find the insurer will not pay it,” she explained.

“Strictly speaking, the law does not provide any remedy for a consumer who has failed to disclose (either intentionally or not), material information – materiality being determined on the basis of what would be material to a prudent underwriter in assessing the risk.

“…the law does not provide any remedy for a consumer who has failed to disclose (either intentionally or not), material information…”

“The trouble with using the prudent underwriter test is that most consumers do not know what a prudent underwriter is and neither do they understand how risk is assessed, until it is too late,” Stevens added.

“Consumers can be left with no policy of insurance, no realistic prospect of obtaining replacement insurance and a very real possibility of having any other policies, held with the same insurer, cancelled on notice.”

The IFSO stated it is time for change with over 100 years since the enactment of the original legislation which underpins the current law, which Minister Faafoi previously highlighted (see: New Zealand’s Insurance Law is Outdated…).

Stevens said a review of the law on non-disclosure is long overdue:

“Legislation to bring us more in line with Australian and UK law would help protect these consumers who unintentionally leave out information.”

The IFSO annual report also found complaints about financial advisers remain relatively low (7 complaints, down from 10 in 2016-2017).

“There will always be complaints, but learning from them is immensely valuable as a means to improve conduct across the entire sector and reduce reputation risk,” said Stevens.

“Complaints help to inform and educate the industry, with the aim of avoiding customer dissatisfaction.”