Post-Claims Underwriting

Maude: Neddy doesn’t believe in insurance. He considers it a form of gambling.

(on Ned Flanders from “The Simpsons”)

Ellen Roseman recently wrote a blog post “Don’t buy insurance from banks.”  In it (and in the accompanying column) she details a couple who approached her with a problem.  They had purchased critical illness and life insurance on their mortgage in 1999, and been upfront with the bank about their health at the time and during renewals.  When the man had developed cancer and they tried to collect on the policy, TD Canada Trust denied their claim, saying it was a mistake that the policy had ever been sold to them.  Getting the situation written up in the Toronto Star shamed TD into honouring the policy, but unfortunately I’ve long had the feeling this is a common occurrence with insurance companies.

When you’re deciding who to buy insurance from, they happily promise you the world.  Benefits are pointed out and you’re lead to believe that you’re fully protected.  Even when you try to get the full details of the policy, agents try to steer you away from that and just assure you “it’s full coverage”.  When something bad occurs, suddenly the situation becomes far less certain and there are a great deal of exceptions and special cases.  Often the insurance company needs to be forced to honour the policy, either in court or by going to the press.

Post-claims underwriting, where the validity of a policy isn’t confirmed until a claim is made, is an AWFUL idea, that clearly exists to collect payments from “customers”, while keeping an escape hatch to avoid payment of any actual claims.  I’ve written before about self insuring, and behaviour like this on the part of the insurance companies is a big part of the reason that I only carry insurance protecting against CATASTROPHIC lose.  Since I currently don’t have any dependants, this is mostly protection against  liability and extreme damage in my rental condo (with the highest deductible they would allow).

The movie “Sicko”, by Michael Moore, details the failings of the American medical system.  It’s obviously a very “structured” perspective on this issue (I love Michael Moore and his movies, but you can’t take this style of work at face value).  My feeling was that the worst failings presented weren’t the fault of the government, but insurance companies being allowed to violate agreements with their customers in disgustingly immoral ways (such as the woman who was denied treatment for ovarian cancer because the insurance company claimed she was “too young” to have developed it).

In investments there is the legal principle that sophisticated parties can not make ridiculously one-side (or overly-complex) agreements  to take advantage of unsophisticated people.  Unfortunately I think this is rampant in insurance sales, where the contracts being sold are VERY complex (and intentionally so), that are being misrepresented to buyers.  Until insurance companies begin to behave (or are forced to behave) with more integrity, I’ll avoid purchasing insurance except when there’s absolutely no other choice.

Have you ever had to make a large claim on an insurance policy?  Was it easy or hard?  Did you have to fight to have the claim honoured, and if so, how?