When purchasing a new insurance policy, we must be fully aware of the consequences of non-disclosure of material fact, which is information that you must give to your insurance company when you make a claim. We must, to our best ability, truthfully disclose all information asked for in the proposal form (or application form), even if we are unsure of what to include and not. Make sure that the proposal form is accurately completed. If we spot any inaccuracies or missing information, we must ask for the document to be amended immediately. Do not accept an insurance policy based on inaccurate or missing information as it could lead to the policy being void (or invalidated), resulting in the insurance company not paying out in the event of a claim.
Allow me to share a real-life case of Madam Moi (*not her real name), age 52.
Between 25 and 30 January 2015, she was admitted to the hospital for a surgery for Ventral Hernia (Laparoscopic Ventral Hernia Repair). Her cashless medical card couldn’t be used as her policy was purchased just slightly more than a year on 15 May 2014. Therefore, she had no choice but to pay cash to settle the hospital bills amounting to RM13,434. But her agent had to settle on her behalf by using his credit card because she couldn’t afford to pay such a huge sum. Then her agent proceeded to file her claim.
During the processing of her claim by the insurer, it was noted from the information received that she had a history of tenosynovitis and tendinitis since 24 May 1997, and is being prescribed with antirheumatic and neurotronic medication. Also noted was the treatment for right sciatica and synovitis left knee on 13 July 2013. This medical history, which is material for underwriting, was not disclosed under section (v) Health Details and Lifestyle of the proposal form signed by her good self on 16 May 2014.
I would like to draw your attention to the statement printed on the proposal form, which read as follow: “You are under a duty to take reasonable care not to make any misrepresentation when answering any specific questions that are relevant to the decision of the Company on whether to accept your proposal, and the rates and terms to be applied. The duty of disclosure shall continue until the contract is entered into, varied or renewed.”
Also referring to the policy contractual provision, the “Misrepresentation Fraud” states the following: “If the proposal or declaration of the Life Assured is untrue in any respect, or if any material fact affecting the risk be incorrectly stated herein or omitted there from, or if this coverage or any subsequent renewal shall have been obtained through any misstatement, misrepresentation or suppression, or if any claim or statement shall be made in support thereof, then in any these cases, their Annexure shall be void.”
In view of the above, the Company was unable to indemnify her claim. Her claim had to be repudiated by the insurer and to adjudicate, settle the claims in accordance with the policy contractual provision. Though it wasn’t the intention of the insurer to repudiate her claim, they were left with no choice.
Even in Madam Moi’s non-disclosure case, the insurer still forwarded her policy to the Policy Processing Department for re-underwriting and advise her on the outcome of the re-underwriting in due course.
The insurer on 22 July 2015 had even requested a written explanation from her servicing agent on whether her agent is aware of the material fact or any circumstances, which could lead to the agent to suspect that there was an element of non-disclosure at the time when she completed the proposal for assurance.
After a written explanation was provided by her servicing agent, the insurer in view of the non-disclosure, made a decision that Madam Moi’s policy is deemed to be null and void from its commencement date, and no benefit whatsoever can be derived from it.
The insurer then prepared to refund the premiums paid by Madam Moi. Furthermore, it also affected her two other policies bought under the same insurer.
On 10 August 2015, I referred her case to the Complaints Management Unit of the Financial Medication Bureau (now Ombudsman for Financial Services), on the grounds that her hernia surgery on 26 January 2015 is totally unrelated to the above two specified non-disclosure as claimed by the insurer to repudiate her claim.Her second supporting declaration letter dated 7 September 2015 to the Mediation Bureau read as:
“I hereby would like to confirm that I cannot recall at all consulting any doctors for the two specified non-disclosure in 1997, 2003, 2006, 2012, and 2013, which was a long time ago. It was also not my intention to ‘hide’ my visits for anti-rheumatic and neurotronic, as well as right sciatica and synovitis left knee on 13 July, 2013.”
“I hope the insurer will re-underwrite my policy and reassess the risk, instead of repudiating my claim by nullifying and rendering my policy void. The underwriter should in fact load or exclude the sickness, which has no connection to my hernia surgery. This, in my view, is very unfair. Please kindly review my appeal.”
After the appeal through the Financial Medication Bureau, and following a fresh review by the insurer, after a long process of appeal, the insurer relented and prepared to resume coverage on her policies without any change to the original acceptance terms on goodwill basis.
The claim of RM13,434 was paid out, and the agent finally got his money back from Madam Moi. Just imagine of the appeal was not successful. The agent would have lost his money and worse, Madam Moi’s three insurance policies will be rendered void.
From this real-life scenario, it is pretty clear that when purchasing a new policy, we must be fully aware of the consequences of non-disclosure of material fact. When it comes to resolving claims, we should first seek help from our insurance company or agent as they have easier access to our records. We need to provide our insurer or agent details such as the policy number, name, contact number, the specific nature of our complaint and supporting documents.
All insurers have their own Complaint Handling Unit and are expected to deal with consumer complaints in an independent, effective and prompt manner. They should also advise us on the next proper avenue to deal with our complaint.
If we are not satisfied with the outcome of the complaint resolution, we can submit our complaint to the Ombudsman for Financial Services.
When forwarding our complaint to Ombudsman for Financial Services, attach a copy of the decision letter of the insurance company. Keep track on the development of our complaints. If it still can’t be resolved, only then we should pursue the matter legally.
Protect yourself and your loved ones now and enjoy savings at FSM INSURANCE!
This article is written by Tan Kim Book CFP CERT TM IFP, is a Certified Member of the Financial Planning Association of Malaysia (FPAM). He is a workshop faciliator and a public financial literacy speaker for FPAM, as well as a CFP ceritification programme facilitator for education providers. Tan has also appeared on Astro Awani to promote public financial literacy.