A pre-existing medical condition clause found in some insurers’ critical illness contracts is raising a red flag in the industry. Insurers without the clause argue that the majority of brokers do not know about it, which may lead to surprise denied claims. Insurers with the clause respond that it is an added protection for the client.
The pre-existing condition clause – or pre-ex – describes any condition (or in some cases symptoms) for which a client was treated for prior to the insurance plan. At claim time, insurers look to see if there was a pre-existing condition and whether it is linked to the current illness.
There can be vast differences from one policy to another as to the wording of a pre-ex. And while pre-ex is typically found in disability insurance (DI) and travel insurance contracts, it is also becoming more common with critical illness (CI).
“The way I interpret [pre-ex clauses] is that the benefits may not be payable for any critical condition, whether diagnosed, or not. It does not say whether I know about it or not,” says Richard Elias, Marketing Manager Living Benefits for Manulife Financial, an insurer without the pre-ex in its CI contract.
Mr. Elias uses the example of a client who suffers from back spasms, and questions whether a clause like this would cover the client should they develop cancer in the back area. “In this case benefits may not be payable, if that pre-ex condition developed into a critical condition,” says Mr. Elias.
“I do not want to take away from the value and importance of CI, but I think a clause like this can give a company the right to contest a claim if they can prove that it was due to a pre-existing condition,” he adds.
However, Marcel Martin, Director of Marketing and Living Benefits for Great-West Life, says that a pre-ex should not be interpreted in a negative way. Instead, he says it protects the client at claim time. “We do it to be clear and to avoid any bad surprises for the protection of the client,” he says.
Great-West’s pre-ex clause reads: “Benefits are not payable for any critical condition, whether diagnosed or not for which symptoms first occurred, medical care was recommended, required or obtained or prescription drugs were prescribed prior to the benefit effective date or last date of reinstatement.”
“If the client is not hiding anything from the insurer and we have the right picture, it should not make the sale harder. If the pre-ex is not on the contract, there may be some expectations in the mind of the client,” he highlights.
As to whether pre-ex is a known concept in the industry Mr. Martin says it is not a new concept for any producers selling group insurance, but it may be novel for brokers solely focusing on individual.
Mr. Martin highlights that insurers without the clause might impose one if they are encountering some bad experiences and they see that having a clause would have resolved and avoided problems at claim time.
At Clarica, Kelly Gowing, Product Coordinator for Retail Health Insurance, agrees. She says that with the company’s product including a pre-ex, the client will know whether they are covered upfront. Ms. Gowing says that it does not make a difference for the client whether they choose a product with a pre-ex or without it. However, adds, “I think as we move forward and more information is revealed, reinsurers will realize that more companies will need a pre-ex.”
Determining which insurers have the pre-ex, however, is not so black and white. Some insurers with the clause clearly label it under a pre-existing conditions title in their contracts, others bury it under a list of exclusions.
Great-West has its pre-ex clause clearly labelled in its contract. Canada Life’s exclusion, however, raises questions.
It reads: “Any symptom of yours, or any medical consultation or test, that leads to your Surgery or Diagnosis that would otherwise qualify as a Critical Illness or Illness Assisted Insured Condition, if that symptom, or medical consultation or test, occurs before the later of the Date of Issue and the date of last Reinstatement of the policy if any.”
Should Canada Life’s exclusion be interpreted as a pre-ex? John Callahan, Manager of Health Underwriting for Canada Life does not think so. He says the exclusion noted above should be referred to as a first manifest.
If a condition a client is claiming for first developed prior to the issue of the contract that would be considered a first manifest and is different than a pre-ex, which would not pay out a claim if the symptoms were found to be linked to the illness which developed, he stresses.
However, Teresa Walkey, Product Director of Living Benefits at Manulife, interprets Canada Life’s exclusion wording as a pre-ex. “What this contract says to me is that this contestability can go on forever. This is what advisors are telling me, it is how they are interpreting it, which raises red flags for them.”
She highlights that “every contract has a contestability period in it, so if there has been any non-disclosure, the carriers have the opportunity to review the documentation and make sure everything is square within two years. We believe that this is adequate.”
“The wording of CI contracts can be delicate for companies, because it is not as black and white as life insurance contracts,” adds Mr. Elias. It is not on death we can pay but it is on a survival of an illness.”
From a client’s point of view, the danger is how do you prove what is a pre-ex condition. “How far do you go back?” questions Mr. Elias. “It can become an issue proving it and can go into litigation.” He adds however, that if it were to go to court, the client would probably be favoured since the clause can be read as abusive. “The only problem is it can delay a claim.”
There was also a misunderstanding as to whether Standard Life had the pre-ex in its contract. The Insurance Journal obtained a copy of the insurer’s CI contract containing a pre-ex. However, Kelly Picard, Senior Consultant for CI products at Standard Life, explains that the pre-ex was part of the insurer’s old contract and it no longer contains the clause.
She says that the company re-examined the contract in October 2002 and decided it was not necessary to include a pre-ex since it is a fully underwritten product. “As long as the client provides full and complete information during the application and underwriting process, then the policyholder can be assured the policy will be in effect when they need it.”
Maritime Life initially designed its CI with a pre-ex, but removed it before the product launch in 2000. Sue Simone, Product Manager of Living Benefits for the company, explains that it was removed before the product ever reached the public.
“That clause read, ‘No amount is payable under this policy if the claim is caused directly or indirectly by an illness or disorder that first manifested itself before the policy issue date,’” says Ms. Simone.
The clause was removed after the contract was shown to brokers to gather their feedback. “Our brokers felt that it added a level of uncertainty to the contract about how claims would be adjudicated, especially since we do full and complete underwriting upfront,” she explains.
Many of the insurers interviewed said that pressure to have a pre-ex clause came from reinsurers. However, Benoît Miclette, Director of Living Benefits at Munch Re, says that is incorrect and it does not pressure insurers to implement it. He explains that the pros and cons of including a pre-ex are discussed with the insurer as part of the product development process and it is the insurer which ultimately makes the final decision on whether it is included.
He adds however, that having a pre-ex clause acts as an extra tool at claim time. The intent of the CI product is to pay on the first occurrence and the pre-ex can ensure that, he says.
Scott Beckett, Vice-President of Living Benefits at the managing general agency PPI Financial, says that insurers will interpret the pre-ex a number of different ways at a number of different times.
“When people get into competition they stretch the truth as to what it means. Products are getting similar and there are more and more products. People are doing what they did with DI insurance 15 years ago. They are getting into line-by-line comparisons, and all you do is confuse the consumer and you end up buying on price,” explains Mr. Beckett.
Mr. Beckett highlights that the wording of most contracts is clear but that most brokers do not read the contracts. Instead, they rely on the general material.
He adds if all things were equal he would buy the product without the pre-ex. However, Mr. Beckett says he would rather buy a product which covered prostate cancer and had a pre-ex than a product without a pre-ex and did not cover prostate cancer, since there is more of a chance he would collect with the first.