Seth’s Blog on Finance

The Critical Importance of Full Disclosure

What is similar across insurance policies? This statement:

“PURSUANT TO SECTION 25(5) OF THE INSURANCE ACT (CAP. 142) YOU ARE TO DISCLOSE IN THIS APPLICATION FORM FULLY AND FAITHFULLY ALL FACTS WHICH YOU KNOW OR OUGHT TO KNOW, OTHERWISE THE INSURANCE EFFECTED MAY BE VOID.”

It is as simple as it gets – When one applies for an insurance policy, he is to make known to the insurance company all facts that he knows or ought to know. If not, the insurer is well within its legal rights to treat the policy as though it never existed.

Non-disclosure compromises your coverage

This is why I let my clients know the importance of disclosing every single fact they can think of that can be relevant to insurance application, and to back everything up with medical reports and evidence if possible. There is no point in getting a policy if one can be denied coverage for a fact that was left out. Adhering to the strict wording of the clause, it does not matter if the fact left out was something seemingly irrelevant to a claim being made – the insurance company has the legal right to reject the claim and even void the entire policy.

Medical histories can be easily uncovered, especially in this day and age of computerised records. It is pointless to buy insurance which is supposed to provide assurance if there is a big possibility that a legitimate claim can become contentious.

As such, I was almost writing an essay when I submitted my own insurance application, complete with medical reports. I wanted to make as full a disclosure I can about my health so that there will be much less ambiguity should the unfortunate happens and I require a claim. I also persuade my clients to do as I have done for their own benefit. As a result, underwriting can become tedious with back and forth follow up requirements. I have spent months trying to get a few tricky cases of integrated Medishield plans done properly even though the remuneration is low as such plans are absolutely crucial in one’s insurance portfolio in Singapore.

I have had some clients who feel like giving up without seeing through the entire application because they think it is troublesome, knowing little of the work I have been putting in behind the scene to ensure their applications are running as smoothly as possible so that they can get the proper coverage they need. I find it a pity. There are also those who want to play with fire, rationalising that their conditions are “not so serious” and not wanting to disclose the conditions. I find this dangerous.

Beware unethical practices

Some agents “overcome” this problem by selling high-margin products instead. Due to the profits generated by such products, underwriting tend to be less strict as the company stand to earn more from such products. “Pure” insurance plans with relatively lower margins like integrated Medishield policies, disability income insurance, term plans etc. are generally held to stricter underwriting standards. Also, a lot of such policies focus more on cash value than they do on insurance, making the risk much smaller per premium dollar to the insurance company. It is statistically obvious that this is happening, with the industry paying out only 10% of total payouts as claims.

There are others who resort to more “creative” methods. They verbally ask the client if they have any medical condition to which the response is usually “no”. The agent will then check all no-s in the list of health questions asked in the application form and has little liability for it as the client is supposed to be the one answering these questions himself. The problem with this is that most people think that they are completely healthy until they are reminded by a question asked in the questionnaire, which is also why I make sure that my clients read and answer every single line of the questionnaire properly. The end result is almost always a “yes” to a question somewhere. I have also heard horror stories of agents obscuring special terms from their clients and/or withholding declared facts from the insurer to close the deal with minimal effort.

Once again, let me remind one and all that there is no point in being underwritten as a “standard case” without exclusions when it is done by withholding information that can be easily traced. You may end up paying premiums for something that you cannot claim on. Be patient and get underwriting done correctly. If you want me to help you, please help me to help you properly.