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May 4, 2016

TRAVEL INSURANCE: Beware of Policy Gremlins a.k.a. The Fine Print

by Bruce Cappon

Bruce CapponThe words policy gremlins on first reading may appear innocuous. In reality they have the uncanny ability to mask, obscure, and otherwise camouflage their true meaning. They can morph at the time of claim, becoming miraculously transparent while shattering an insured person’s expectation to a right to coverage.

 

The purpose of this article is to assist travel insurance shoppers in identifying these creatures. Differentiating policies at the point of sale is key to minimizing the risk of a subsequent claim denial.

Generally, policies with a higher concentration of gremlins may lower the premium but enhance the risk of being side-swiped by a rescinded policy.

How often have you heard the admonishment to those who bought insurance but ended up footing their own medical bills: “they should have read the fine print”? That’s not good enough. I subscribe to the three Rs principle: Read, Recognize and Run (if need be).

Favourite Gremlin Haunts

Let’s start with the medical questionnaire. This is one of the gremlins’ favourite haunts.

The penalty for even a trivial non-eligibility-related misrepresentation or inaccuracy with most (but not all) insurers can result as if no coverage was purchased. The consumer will likely be responsible for paying their own medical bills.

Essentially, issuance of a policy/certificate is limited, denoting approval of the consumers’ right to pay premiums; whether or not insurance coverage has been in force will be determined in the unlikely event a claim is submitted.

The final word rests with the insurance provider, not you and not your physician. It’s the insurer who has the sole discretion to determine whether there are grounds to declare the contract null and void; their customers may have purchased the insurance with the utmost good faith and due diligence. Yet, through no fault of their own, they may have run afoul of a particular insurer’s unclear interpretation of what constitutes a “material misrepresentation”.

What’s A “Material Fact”?

“Material fact” is a significant gremlin phrase, found in both the policy document and in the declaration agreed to by their customer. Its importance may easily be overlooked when bundled in a sentence commencing with: “fraudulent”, “dishonest”, “untruthful” followed by “inaccurate”, “incomplete” or “failure to disclose a material fact”. So what exactly is a “material fact”? Is it precisely defined in the policy-definition section? Generally not.

Just how likely is it that respondents could be snared by this clause? Bear in mind that the clause does not state that the policy can be rescinded where the respondent made a statement with reckless regard for the truth or for act(s) of intentional deception.

The Travel Health Insurance Association’s (THIA) advice to Canadians to take the purchase of travel insurance very seriously is well founded. The concern I share particularly with many senior/snowbirds is whether there is sufficient reciprocal legislation putting the onus on insurers to do likewise. Evidence for this can be found in an individual travel Insurance Health survey commissioned by THIA1 ”indicating that 18% of respondents have inadvertently provided inaccurate health information on travel health insurance forms – something that can void an insurance policy”.

Based on my anecdotal experience, I have found that this percentage could be as high as 50%, particularly when insurance is purchased online or by telephone with little advice and guidance.

The following are categorized as gremlin-loaded medical questions:

The Time Warp Question

I’ve found over 50% of respondents could make an inadvertent error on this one…It’s a biggie!

Question: In the 5 years [Author’s note: this could be any timeframe] prior to departure, have you been diagnosed, hospitalized, treated with the following medical conditions)…?

The majority of respondents who were originally diagnosed with their medical condition perhaps 6, 10, 20 years or more before the specified 5-year timeframe, would answer “No” to this question even if they have still been treated in the last 5 years. But the accurate response is “Yes”.

I can’t count the number of times I have interviewed seasoned snowbirds who were shocked to learn that they had been answering this type of question wrongly for years. Fortunately, they had had no claim.

Tip: Even if you were diagnosed more 5 years earlier, if you have been treated (by medication or other means) within the past 5 years, be sure to answer “Yes”.

The Guessing Game Question

Example:

A. Do you have a moderately severe or a severe vascular stenosis?

B. Do you have a heart condition?

Even if, as recommended by the insurer, you had consulted your doctor in advance, the correct response would be subject to the interpretation by the claims examiner. This particular definition of the “heart condition” includes a list of specific heart conditions but added to that list carotid artery occlusion or disorders of the blood vessels. Typically, the latter would be included under cardiovascular conditions not heart.

Tip: Demand precise definitions of each of the medical conditions, period.

Tip of the Iceberg Question

Question:

In the last 24 months [Author’s note: or any other timeframe] have you been treated for any gastro-intestinal conditions including but not limited to: cancer, bowel disorder, Crohn’s disease, irritable bowel syndrome?

Tip: Demand a finite list. Words like “including” or “but not limited to” or “any” are gremlin words. You’ve got to be concerned about the number of hidden conditions that lurk beneath the surface and may only be clarified at the time of claim – that’s too late!

Back To Birth Question

The question may say “ever” or may not even state any timeframe at all, which de facto means “ever” i.e. back to birth!

For instance, the question may say: Have you ever had two of the following three conditions: diabetes, stroke, any heart condition? Note, for the purpose of this medical questionnaire, “ever had” means you have been diagnosed prescribed medication or taken prescription medication for this condition.

Tip: It’s unwise to answer this type of question especially if it is linked to very general medical conditions which could be easily overlooked (until in the claim examiner’s hands).

The Catch-All, Cast-A-Big-Net Question

Question:

In the last 12 months, have you had surgery or required medical treatment or taken any prescription medication for any other medical condition?

Tip: You’ve got to be kidding! What if you neglected to remember you consulted your doctor for a stubbed toe, flu, bronchitis etc. 10 months ago!

The Numbers Game

Question:

How many medications do you take to treat______?

Tip: Heads’ up! Recently, drug companies have manufactured combo/dual meds for treatment of blood pressure, diabetes, lung disorders, etc. Most consumers would not consider or know how many medications were in a pill. Clarify with the insurer whether they mean number of pills or total meds including in dual prescriptions.

At this point you may have concluded that the best solution is simply to avoid insurers that demand a medical questionnaire. Well no. For most applicants over 55 and/or for trips of longer durations, the questionnaire is part of the mandatory application process. Moreover policies with no medical questionnaire may also have many adverse clauses such as:

1. Insurers may merely state rather than ask the medical conditions. This still leaves room for ambiguity;

2. The “flying standby” clause a.k.a. change of health clause. How can you plan ahead when there is no certainty that your insurance coverage will be continued? This adverse provision states that you must report changes in health on the single-trip plan between the purchase date and departure or in the case of a multi-trip (annual plan) prior to every departure.   Under this clause the insurer is free to cancel your policy, raise the premium and/or not cover you for specific medical conditions.

3. Adverse stability clause.

Here is one such example:

The Imitation Stability Clause

These policies could be relatively cheap but unbeknownst to the consumer would not cover any pre-existing condition for which treatment was ever received. They could include back to birth or refer to a specified timeframe. It’s very difficult for the consumer to differentiate between this clause and a more generous one that does cover pre-existing conditions, providing they have been stable over a certain timeframe prior to departure.

Imitation Stability Clause Example

“Benefits are not payable for costs incurred due to: any sickness, injury or medical condition, that exhibited symptoms for which a diagnosis need not have been made or required any or all of, medical consultations, prescription medication, medical treatment or hospitalization, within the of 180 days immediately prior to the effective date.

Tip: The foregoing would exclude coverage for any treated medical condition within the specified time frame whether stable or not.

Whatís the Solution?

So what’s the solution? Should we all just throw up to our hands in despair and not purchase any travel insurance or not travel at all? Absolutely not. There are policies on the market that provide fair coverage at a reasonable price. Consumers would have to do their part in becoming knowledgeable shoppers. To minimize the risk of exposure of your own assets to arbitrary rescission of insurance coverage, insist on a concise and precise (gremlin-free) medical questionnaire. Even more importantly it’s a non-starter if the policy has a financial penalty cap due to an inaccurate response.

Shop for a policy that allows you to pay a medical health questionnaire (MHQ) deductible if you’re faced with a huge medical bill but would traditionally be denied coverage because of an unintentional mistake. What this means is that the insurer shows some understanding and compassion when it comes to an oversight on your MHQ. Rather than deny your claim entirely based on an error, they would apply a deductible if the claim was otherwise payable. Consequently, the largest financial loss will be that deductible.

Although the deductible isn’t cheap (it can be $15,000 in some cases), it would make it a huge difference if your medical bill were in the tens, or even hundreds, of thousands. You’d be surprised how quickly the bills add up if something happens abroad; a $100,000 bill isn’t uncommon.

Five Quick Tips

Don’t buy blind. If the provider does not offer a sample policy contract prior to purchase, move on.

Be reluctant to answer medical questions over the phone without advance written copies. Moreover, insist on the completed version of the hard copy prior to finalization—otherwise significant details may get left out.

Avoid gremlin policy and wording by answering questionnaires between 1 to 20 questions (including subsections of those questions). Recommended length should be under 20 questions.

4. As a safeguard, insist on a penalty cap for misanswered questions.

5. Be skeptical of policies where the contract bars their customers from seeking legal recourse in the courts. Certain policies insist on disputes being settled by an arbitrator with no right of appeal to the courts. At minimum know the stats of the particular arbitrator. How many complaints made versus those settled in favour of the consumer?

Final Word

For further advice on comparative shopping, you may consult my website for a “Safety Checklist”. I am a strong advocate for travel insurance that provides greater safety and certainty for consumers. You can also read my report to the CCIR entitled “Travel Insurance: The Urgent Need For Improved Regulation Governing Contract Voidability”. This submission details the dynamics of policy structures combined with current insurance regulations which may fall far short of Canadians’ expected level of consumer protection.

CCIR Update

The CCIR made an examination of travel insurance one of its key priorities in 2015 including a travel insurance survey asking insurers for their detailed stats on claim denials. As a result, they formed a working group that is currently undertaking research on travel insurance. We’ve been told to expect the Issue Paper to be released this spring.

Meanwhile it’s buyer beware!

 

 

Bruce Cappon, Travel Insurance specialist, President, First Rate Insurance Inc., Ottawa, ON (800) 884-2126, info@firstrateinsurance.com, First Rate Insurance

 

1 Report shows that travel health insurance saved Canadians more than S138 million – THIA – November 25th, 2014 http://www.thiaonline.com/cgi/page.cgi/article.html/Latest News/Report shows that travel health insurance saved Canadians more than 138 million