After the Insurance and Financial Services Ombudsman Scheme obtained three prudent underwriting opinions regarding a life insurance complaint, the insurer changed its original position and agreed to reinstate the policy and pay the claim using a retrospective 50% loading.
In a case study on its website, the IFSO Scheme says that after her husband’s Pita’s death in 2024, his wife, Marie, made a claim on behalf of his estate.
It says Pita applied for life insurance and that before applying, he had had a health check prior to emigrating to NZ that showed raised HbA1c.*
“His medical notes also showed he had had blood tests immediately before applying for cover and, later that month, his general practitioner told him the results were abnormal and advised changes to diet and exercise. No treatment or follow-up tests were arranged.”
The IFSO case study says the GP notes also recorded a pansystolic murmur and said it needed further investigation. The notes did not record that this was discussed with Pita or that any referral or testing was arranged at that time.
…It avoided the policy (treating it as if it never existed) and declined the claim…
“After Pita’s death in 2024, his wife Marie made a claim on behalf of his estate. The insurer reviewed the application and medical records and decided that the HbA1c results and heart murmur information had not been disclosed. It avoided the policy (treating it as if it never existed) and declined the claim.”
Marie complained to the IFSO Scheme, saying her husband was not aware of all the medical issues and that the claim should be paid.
IFSO’s Decision
The IFSO Scheme says it considered whether the insurer could rely on non-disclosure – whether Pita knew about the medical information and should have included it on the application.
…The test in New Zealand is still what a prudent underwriter needs to know to underwrite the risk…
“The test in New Zealand is still what a prudent underwriter needs to know to underwrite the risk – will they provide cover or not and, if they do, would they charge a higher premium or add exclusions.”
It says the evidence showed that Pita knew about his abnormal blood results and HbA1c history, because his doctor’s notes and the immigration medical recorded they had discussed these with him.
“This information was material, because the underwriter would have done something different to applying standard terms if they had known about it,” the case study says.
“However, there was no clear evidence that he knew about high blood pressure or the pansystolic murmur before the policy started. Although these were noted in medical records, there was no record they had been discussed with him and there was no treatment, or follow-up at the time.”
The IFSO states the case manager obtained three prudent underwriting opinions based on the information Pita knew.
…The opinions varied, with one underwriter saying they would have offered cover at standard rates and others saying they would have accepted cover with a 50% loading…
“These opinions varied, with one underwriter saying they would have offered cover at standard rates and others saying they would have accepted cover with a 50% loading (adjusting the claim payment amount to reflect a higher level of risk that should have applied when the insurance started).”
It says that after the scheme discussed this information with the insurer “…the insurer changed its position and agreed to reinstate the policy and pay the claim using a retrospective 50% loading.”
“This meant they would pay $66,560, reflecting the higher risk premiums that would have applied if the known information had been disclosed at the start.”
The scheme says Marie accepted this offer, and the complaint was settled.
Real Names have not been used.
*The HbA1c test is used to find out if someone has diabetes or prediabetes, according to Health NZ’s website.