You probably believe that if you make a claim on your critical illness or disability insurance policy, you will get the benefit indicated in the contract. Similarly, if an insurance company issued a life insurance contract to you and you died, you almost certainly expect that it will write a cheque to your beneficiaries or estate once your executor provided the death certificate.
That's not always the case. For various reasons companies will often review the applications for insurance that you completed when you applied for a policy, obtain your records from your provincial health insurer and review your doctors' records after a claim is made. Based on what they find, they may deny your claim.
The problem you -- and insurance agents -- face is that there is no way consumers and insurance agents can get information on what percentage of claims are denied or policies cancelled by a specific company.
I'm not saying that all insurance companies have windowless rooms where behind locked doors there are armies of workers reviewing countless documents and denying claims at every opportunity. Furthermore, I doubt if every individual who makes a claim under a disability policy is assigned an insurance investigator who searches her Facebook account or stands outside her residence on a cold rainy morning hoping to catch her in the act of taking out her garbage, providing proof that she is able to work.
My recommendation is that the insurance regulators compel insurance companies to provide some basic statistical information about unpaid claims and policy cancellations -- along with the reasons -- on their websites. This will enable insurance agents and potential buyers to make more informed decisions.
This shouldn't be onerous for insurance companies since they already compile such stats for internal use. Besides, there is precedent in the United Kingdom. There, critical illness insurers have disclosed their payout records for the past two years so that potential buyers and their advisors can better access and compare insurance company offerings.
A 2007 government study in the UK estimated that on average only 80% of critical illness claims were paid. However the claims payout ratio by insurer was as low as 72% and as high as 90%. If I was about to apply for insurance, I would like to know which company has the best record for honouring claims.
The variations in payout rates suggests to me that some companies do a better job than others in educating applicants about the need for full disclosure and the consequences of not fully disclosing medical conditions at the time of the application. It also suggests that some companies do a better job than others of medical underwriting or reviewing the application form when it is received.
There is also the matter of training. I suspect that some companies are better than others at educating their agents about their products and their application forms.
I would also like to see a ban on post claim underwriting for life insurance. The time to review medical information in my opinion is when an insurance company receives the application, not when a claim is made.
Most companies do review applications when they are received, particularly for large policies, and it's not uncommon for an underwriter to request additional information before deciding whether the insurer should assume the risk, and if so, at what price or premium.
But it's a different case with smaller policies, and in particular creditor insurance on car loans and mortgages. The information on the application form may only be reviewed if a claim is made. If for example the information and additional investigation indicates that the person insured had a pre-existing condition that is not covered, the claim will be denied.
Of course not everyone with a heart condition who takes out insurance on his car loan will die before the loan is paid off. If that individual's application had been reviewed at the time it was made, the application would have been rejected. But because it wasn't underwritten at the time, the company collected the premiums. Needless to say this type of business is very lucrative for insurance companies.
My advice is if you're looking to insure your car payments or mortgage, ask the car salesperson or your mortgage agent what their qualifications are to sell you life or disability insurance.
There's nothing stopping you from calling an insurance agent and getting his or her recommendations, which will be tailored to your needs.
