Insurance underwriting is the process by which investment bankers or ‘underwriters’ evaluate the risks and exposures of the policy and whether the insurer is in fact, willing to provide cover at all. If a specific applicant’s risk is deemed to be too high, underwriters may refuse to cover you.
During the appearance of Financial Services Council (FSC) before the committee, NSW National Party Senator John Williams has described direct insurance and underwriting at the time of claim as a serious problem for the life insurance industry that needs to be addressed. Similar concerns about this matter have been expressed by both Association of Financial Advisers (AFA) and the Financial Planning Association (FPA).
Williams believes that it is a serious problem “when people think they have insurance and it may well not be the situation when tragedy strikes”.
“I think that is a really serious problem, when families take out their direct insurance thinking that the family is covered,” he added.
“For example, a bloke takes out insurance, he dies of a heart attack, they check out his history and they find that at two weeks of age the baby has had a valve replaced in the heart so they are not paying.”
While some direct insurance providers underwrote at the time of application, but that is not always the case. Currently, both FPA and AFA have been called for action to address problems of insurance underwritten at the time of claim because the success of claims for such products is very low.
We believe that a policy that is underwritten at claim isn’t worth the risk. Of the people that we come across that have had bad experiences with insurance, nearly all have been because they were not underwritten and didn’t realise that if they had been underwritten, they wouldn’t have had cover in the first place.
If you have insurance in superannuation or a policy you ‘got over the phone’ we suggest that it is time to review it.
By: Rachel Santos