Andrew Hooker looks at the risks of buying on-line travel insurance and the five-minute questionnaire that glosses over important fineprint detail

By Andrew Hooker*

Most of us buy travel insurance when we travel overseas.  In the old days we used to buy it from our travel agent with the tickets.  But with the increasing use of internet bookings many people buy travel insurance online or through the airline.

Internet gives us a sense of ease and simplicity.  A few simple questions and you’re covered.  The policy arrives by e-mail and off we go, knowing that we are covered should an unexpected event occur.

Whilst policies cover baggage and other “minor” risks.  The real reason we all need travel insurance is to guard against to main risks:

• Cancellation or curtailment of the trip due to unexpected events like your own sickness, or the sickness or death of a relative;
• A medical emergency when overseas.  The expense of hospital and associated costs in places like the USA or Europe is huge.

Whether buying travel insurance or any type of medical cover, insurance companies are experts at making the sales process easy and quick.  Tick a few boxes and you’re covered.  The money is paid and you get that sense of security that should anything go wrong you will be covered.

Post claims perils

The trouble is, some insurance companies tend to wait till you need them to do the research into your health that they should have done when you applied for the cover.  In the trade we call this “post claims underwriting”.  When you make a claim, whether it is a month after taking out the policy, or ten years later, they will demand a full review of all your medical records before accepting your claim.  They could have asked for this when you applied, but that of course will get in the way of a quick sale. 

The insurance company will then plough through all your medical records, while you languish in a hospital in Los Angeles, or Bombay, and refuse to accept cover until the review is complete.  And if they find anything that you forgot to disclose, your policy may be invalidated.  Those simple medical questions on the application become the basis for refusing your cover.

“Have you ever undergone any medical tests…”  Don’t forget that time ten years ago when you felt a bit queasy and went to hospital to be checked out.  Only to be given what you thought was a clean bill of health.  What about the note from your GP that you needed a bit of time off because you were “stressed and overworked”.  That may be seen as a record of previous mental illness.  Both of these are actual examples of post claim underwriting resulting in a claim refusal.  The customer applied in good faith, completed the application to the best of his knowledge, but genuinely overlooked the minor medical event or didn’t properly understand the technical and widely worded question.  As soon as the insurance company finds it, the policy is invalidated and you are without cover.

What you don't tell will hurt you

It gets worse.  It does not matter if the event you are claiming for is totally unrelated to the alleged non disclosure.  The policy is invalid and you’re on your own.

Another trick is the dreaded “pre-existing condition”.  Instead of checking that you are a good health risk, the insurer just insures anyone who will pay, but includes a clause in the policy removing cover for any pre-existing conditions.  Some of these clauses used to apply even to conditions you don’t know about, although thankfully that is rare these days.  But you’d be surprised what is excluded as “pre-existing”.  Again instead of asking all the questions up front and making an informed decision, they rush through the sale process giving a false sense of security when the policy is issued.

Insurance is a necessity when travelling overseas, and for sure many many claims are paid every year.  But the insurance industry needs to shape up and start being a bit more up front with its customers, especially when they are selling products over the internet.  The profit in this product for the industry is huge.  Travel agents have been known to receive over 50% of the premium as commission.  Perhaps instead of paying huge amounts of commissions the insurance companies can put a little more effort into getting the process right at the front end so we don’t get surprises at claim time.

Of course this is a travel insurance story, but it can apply to any type of medical or health insurance.  When we see companies advertising income protection insurance that can be obtained over the phone or in five minutes over the internet, we should be concerned about just how hard the insurance company is trying to actually collect information and analyse the application.  Or are they more focused on the sale, relying to technicalities and exclusions that will come to light only when you need the insurance most.

Insurance companies need to be more up front, and do the work when they take the money, not when you need theirs.

*Andrew practices as a specialist insurance lawyer in Albany, on Auckland’s north shore and a director of Claims Information Specialists Ltd, running an insurance information website – www.claimshelp.co.nz.