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What is Post Claim Underwriting?

Post claim underwriting occurs when an insurer reviews the answers to questions on the original application for insurance, only after a claim is submitted, then after verifying the answers it accepts or refuses to pay your claim for a loss that in the mind of the policy owner should have been covered. Any  rejection is based on the grounds that you were a bad risk, didn't answer the questions correctly or honestly and the policy should never have been issued, thus the insurer cancels or rescinds the policy and refunds your premiums.

When you apply for traditional insurance, your application is underwritten or assessed by the insurance company at the time you apply. Underwriting is the practice of determining, based on your application and other information the underwriter may obtain regarding your health and background, whether the insurance company should make you an offer of insurance and, if so, on what terms and for what premium. All of this underwriting work is normally completed before your insurance policy is issued. Post claim underwriting on the otherhand does this underwriting only when a claim is submitted.

The sinister viewpoint is that an insurance company that is relying on post claim underwriting, instead of looking to pay your submitted claim for a loss incurred as promised under the terms of the insurance policy it issued to you, it looks for all the things in your application or coming from your application that it might be able to dig up to rescind (cancel) your policy and avoid having to pay your claim. The insurance company, rather than refusing to issue you a policy at the time you apply because information in the application leads it to believe you are a bad risk, waits until after the policy has been issued (and you are falsely secure in the knowledge that you have insurance protection) and, then after you have submitted a claim, denies coverage on the grounds that the policy should not have been issued in the first place.

When this occurs, the insurance company ignores its commonly understood obligation to do underwriting when a policy application is made rather conducting its risk assessment after your claim is submitted. The insurance company performs this after-the-fact evaluation to rid itself of an insured individual it contends should never have received insurance coverage. Meanwhile, you believe that you have valid insurance and do not seek insurance elsewhere. While they may be merit to this arguement in some instances, these instances are a consequence of and not the primary reason for the practice of post claim underwriting.

Why and When is this post claim underwriting procedure used?

There are two fundamental reasons for this practice. Simple efficient sales process and Cost Savings.

Expediency and Simplification:

Completing the transaction quickly and with minimum explanation to the consumer. By and large, in the mind of the insurer, no salesman is required as the sale is already made in the mind of the consumer. You as the consumer. do not need to be convinced for the need for the types of coverage offered by this method. Mortgage protection, life or critical illness; Creditor insurance; Emergency Travel Insurance, or Guaranteed Issue Life Insurance all employ this method of underwriting and issue. With the sale pre-made, what is left is the order taking which can be done with simple questions to pre-exclude those that don't qualify. This makes the issue process quick and efficient. When you arrange your mortgage, or your holiday trip, you can right there and then apply for and get your insurance coverage put in place.

This is where you have to be aware, read the questions very carefully, make certain you understand fully each question. They are not trying to trick you, they are just trying to cover every possible situation in very short space. This often makes the  question seem convoluted, tongue twister with a lot of medical terms. The answer you provide will be the basis, compared to doctors records and other corroberating facts, at time of claim for acceptance or denial.

Cost Saving

It is very expensive to underwrite (assess) an application with medicals, blood test, doctors reports and the salaries of the risk assessers, underwritiers. It can run into hundreds of dollars. To cover all those costs with each and every application the premium charged to consumers would be above any price point the consumer wouyld be willing to pay. So all application forms are scrutinized for completion at time of sale and fully evaluated at time of claim. The reality is that there are far fewer claims than sales.

Buyer be Aware:

The typical post claim underwriting case is easy to recognize. Instead of being processed through the claims department, your claim is sent to the insurance company’s underwriting department. The underwriting department then begins its post claim underwriting by requesting you to sign a release for your medical records. Alternatively, it may forward a release obtained at the time of your application to your medical service providers. After the underwriting department carefully reviews your medical records, and identifies an omission or inconsistency from what was shown on your original application, the insurance company could deny coverage on the basis of misrepresentation, concealment or fraud in your application. You are advised that your policy is being rescinded, the premiums returned, and that there is no coverage for the claimed loss.

A very simplified insurance application provides another hint that the insurance company may engage in the practice of post claim underwriting. The insurance company may ask only whether you are in “good health” or may even make no health inquiries at all. If health-related questions are included, they are generally broad-based and subject to interpretation, opinion-type questions, and ask you to check a “yes” or “no” box, without requiring any explanation. Although the form may request the names of treating physicians, the insurance company that engages in post claim underwriting will not follow-up on the information provided until after you file a claim. The policy is issued immediately upon your application and payment of premium. No medical examination is requested.

Often a long delay occurs between the time you file your claim and its final disposition while the insurance company performs underwriting. The company prepares this file as thoroughly and completely as it can to support its plan to rescind, or cancel, your policy on the grounds that it has, after the fact, unearthed information about your prior medical history that would have caused it to decline your application for insurance if this information were known at the time of application. The acquisition of medical records and their assessment can take months.

If you believe you are about to be the victim of post claim underwriting, you should immediately consult an attorney with expertise in this area to protect your rights.

The reality is that certain insurance products are offered on this post claim underwriting basis. The further reality is that you may have a need for some of these products.

The most common of these products subject to post claim underwriting:

• Creditor  Protection Products
  • Mortgage Protection from the Bank (Canadian mortgage insurance)
  • Credit Card Balance Protection from Bank or Retailer
• Emergency out of Country Travel Insurance
  • CAA
  • Travel Agent
  • Bank
• Guaranteed Issue | Direct Insurance (simplified issue) Life Insurance
  • TV ads
  • Advertising (in the mail)

Free Advice:

Historically, all insurance sales had to be made through licensed experienced and qualified insurance sales people. The risk premiums for these types of products are often very small and the sales and issue costs can be prohibitive. The insurer solved the sales cost problem by paying very modest compensation to the distributer the (bank etc.) who has to make their return on the high volumes of small sales. Thus all the sales energy goes into the sale and not the explanation. In many cases it is an "after market" sale. The mortgage was the principal sale, the holiday trip was the principla sale.

So here is the "Free Advice".  Before you buy insurance:

• Talk to your financial advisor, one that provides you with a broad spectrum of financial services. If you have a relationship with one now, he or she is it. If not you need one, not for this but a whole host of other reasons, so get one.
• Most will welcome the contact. They will not be excited about the renumeration from any one of those sales. Most will provide you with advice that makes sense. Some will, as a service, if they can, facilitate the transaction. Insurance agents know about underwriting insurance far more than you do, they can and probably will help you through the process.
• Don't leave it to the last minute. Yes, we know its human nature. On the other hand, remember you are buying these products to have "peace of mind". If you rush, how secure will you feel about the coverage, if you hadn't carefully read the terms, conditions and questions in the application.
  • Get independent advice about the coverage, alternatives, if any, and the process.
  • Plan ahead, alternatives take time to secure. If you're convinced the need for coverage exists make sure you are getting the coverage you think you are getting.
• Shopping
  • Shop for the plan, or use your financial advisor.
  • Shop early for your life and disability, critical illness  insurance that can include protection for your mortgage needs. It puts you in be better bargaining position and eliminate any potential perception of intimidation.
  • Understand what is or is not covered and what you need to do in the event you need to claim. This is especially necessary in travel health insurance.
• Completing the application - It is very important you follow the following steps -
  • Take your time,
  • don't rush,
  • make certain you understand each question before you answer it.
  • if you don't understand a medical term or procedure, ask; if the advisor doesn't know, RUN!
  • ask if the plan is underwritten post claim, if the advisor doesn't know? - RUN, If the answer is yes, it is OK to proceed with extra caution, but internalize the concept and accept it as reality, so there isn't surprises later.~