What is Non-Disclosure and Why is it so Important?

Non-disclosure: the failure by the insured or his broker to disclose a material fact or circumstance to the insurer before acceptance of the risk.

Health Insurance companies have received very bad press over the years because many consumers been given the impression that they are actively looking to make a claim invalid in order that they do not have to pay out on a policy.

When you apply for private medical insurance you may be asked to provide a detailed medical history. Part of the responsibility here lies with you as a consumer. It is very important to be very open and honest with your provider because any non-disclosure which comes to light later on could make your health insurance invalid. It is important that you read all the information provided to you by the health insurance company that you are dealing with. Once you sign your application form it becomes a legally binding document.

A study conducted by AXA and YouGov earlier this year found three main reasons why people leave out relevant medical and lifestyle information:

They wrongly think that they will be refused medical cover or charged more for it
They are embarrased to reveal personal information to a stranger
They didn't think that the information was very important

This leads me to think that a large part of the responsibility for ensuring full disclosure should be with the medical insurance companies. The Guide to Non-Disclosure published in September this year agrees. AXA say: "As an industry we need to educate consumers that many things that they believe would affect their premiums will not make any difference." Education is part of the equation but what other measures does the industry have to protect consumers from the effect of non-disclosure?

Teleunderwriting is one solution to people's embarrassment about talking about private issues with strangers. The person on the other end of the phone is anonymous and therefore easier to talk to.

"AXA’s 2007 statistics show that full teleunderwriting reduces serious non-disclosure fivefold. We found non-disclosure that could potentially lead to a claim being declined with 5.78% of paper applications. This compares with 3.48% for electronic applications and 1.23% for teleunderwriting applications."

A Financial Ombudsman is available to help consumers with complaints about non-disclosure and there is a free factsheet available on this topic. However following recent guidelines by the ABI (Association of British Insurers) the medical insurance industry has been addressing the fairness with which they treat customers who unintentionally gave inaccurate or incomplete information. They catergorise non-disclosure into three different categories (the Innocent, the Negligent and the Deliberate or without any care) and suggest different ways in which individual's claims could be handled more appropriately rather than just automatically revoking the claim. For example there was a case where a woman had not smoked during her pregnancy and when asked by the insurer if she smoked she said no. The insurer should have asked her if she had smoked within the last year for which the answer would have been yes. This is a case of an Innocent consumer where the onus was on the insurer who did not ask the right questions.