Review of Insurance Guidelines

1. Review of Insurance Guidelines Presentation to LADUCA 27 June 2006

2. Introduction • HRC Insurance Guidelines published 1997 • Purpose: to explain how the Human Rights Act applies to the insurance industry, for benefit of both insurers and consumers • Developments since 1997: rapid advances in genetics and genetic testing, unprecedented increase in mental illness, landmark legal cases involving the insurance industry in Canada and Australia • Significant changes to the HRA and HRC over this period, including end of cap on age ground, changes to complaints handling functions and introduction of new complaints powers against government. • The Commission believes the guidelines should be reviewed to make sure they continue to meet the needs of insurers and those who buy their products. • The current review: It is hoped that a discussion paper will be completed by end of July. Public consultation is planned to be competed by end September, and draft guidelines prepared by the end of November.

3. Section 44 HRA • Section 44 of the HRA makes it unlawful to refuse or fail to provide goods, services or facilities to a person, or provide them on less favourable terms, on the basis of one of the prohibited grounds. • ‘Facilities’ is defined to include insurance. The prohibited grounds include age (from 16 years) sex and disability. • Disability is broadly defined and includes psychiatric illness, intellectual or psychological disability or impairment, any other loss or abnormality of psychological structure or function, as well as physical impairment, illness or disability.

4. Section 48 HRA • Although insurers cannot refuse to provide a person with insurance, section 48 sets out exceptions in certain circumstances. This means that insurers can include different terms and conditions in insurance policies on the grounds of sex, age or disability if the difference can be supported by statistical or actuarial data. • In the case of disability, differences in policies may be allowed if, in the absence of statistical data, there is medical advice or opinion that it is ‘reasonable’ to rely on. Whether the advice is ‘reasonable’ will depend on how it is applied and on ‘any other relevant factors.’

5. Issues for discussion Language The Commission is concerned about the industry’s use of the term ‘substandard lives’. Disabled people often feel that they are not valued as full members of society. Language which suggests lives of lesser value is disrespectful of disabled people, as well as groups such as older people. Suggested Solution: • Replacing inappropriate language with other terminology should be considered.

6. Issues for discussion Reasonable data or advice • The need to provide ‘reasonable’ data or advice in order to justify an exception under the HRA has been a problem for the insurance industry for some time. This is partly because there is an assumption that any insurance policy can be priced. However, this can be difficult with certain groups, such as disabled people and older people, if there is no relevant statistical data or it is necessary to rely on other information or advice. • Recent legal cases in Canada and Australia have placed the onus on insurers to demonstrate a clear link between statistical data and their decision to price policies differently for particular groups of people. Further, the data that insurers rely upon to make their decision should be as up-to-date as possible, and any limitations to the data should be made known.

7. Reasonable data or advice (cont.) • The Courts have also said that insurers must take into account the particular circumstances of an individual when justifying an exception. Suggested solution: • In deciding whether data is reasonable there should be a logical link between the data provided and the facts of the case. The fact that no statistics may be available does not mean that there are not other ways of assessing risk. Overseas studies might be relevant or census data, for example.

8. Issues for Discussion Other relevant factors • Whether data or advice is reasonable may depend on ‘other relevant factors’. At times insurers have taken this to include their commercial viability. While the Commission appreciates that the industry is subject to a variety of financial control mechanisms, using commercial considerations as a reason for imposing higher premiums or excluding cover can undermine the purpose of including insurance in the HRA. Suggested Solution • In order for ‘other relevant factors’ to be used to justify an exception, the data or advice must be tailored to address individual situations. Commercial expediency or economic viability will not be, in itself, a relevant factor.

9. Issues for Discussion Medical advice or opinion • Where there is no actuarial or statistical data available in relation to disability, an insurer can rely on medical advice or opinion to justify an exception under the HRA, provided it is reasonable in the particular circumstances. The advice must be relevant to the applicant’s disability and the product which they are seeking to buy. • Not all medical practitioners, however, may have the necessary skills to assess the risks relevant to long term products such as life insurance. It is also important that the advice is provided by a person who is aware of advances in treatment.

10. Medical Advice or Opinion (cont.) • A related issue is how long an insurer can defer pricing a product when little information exists about a particular disability. The current insurance guidelines state that a company may need to defer making a decision in order to gather further information about an applicant’s condition. • However, any deferral should be only for the minimum time necessary to gather the information and quantify the risk. An insurer cannot defer making a decision for so long that it effectively becomes a refusal to insure. Suggested Solution To justify an exception in relation to disability, medical advice or opinion may be sufficient, as long as it is current, relevant and applicable to the particular circumstances. A decision about pricing a product may be deferred but only for a reasonable length of time.

11. Issues for Discussion Exclusion clauses • Insurance companies commonly include exclusion clauses when developing new policies. In general, the Commission accepts that such clauses do not contravene the HRA. Products can be offered with exclusion clauses because, in theory, the policy is provided on the same terms to everyone. However, such clauses must be used carefully. • The way products are offered may have the effect of treating certain groups of people in a discriminatory manner, such as health insurance or income protection that distinguishes between mental and physical illness.

12. Exclusion clauses (cont.) • Although insurers might argue that applicants are forewarned about the terms and conditions on which they purchase the insurance, it is also the case that a person cannot anticipate what form of disability they might develop when they purchase the insurance. • The person’s purpose in buying health insurance is to ensure that they can receive treatment if they become unwell. It follows that the distinction between, for instance, mental and physical disability is irrelevant and potentially discriminatory. Suggested solution: Blanket exclusion clauses need to be set out in a way that does not discriminate unreasonably against any of the groups protected by the HRA. Exclusions must be justified by information that it is relevant and reliable.

13. Issues for Discussion Pre-existing conditions • Excluding pre-existing conditions from insurance cover is legitimately used by insurers to limit the risk of ‘adverse selection’; that is, people who seek to take out insurance on favourable terms knowing they have a particular condition or there is a strong possibility that they will develop that condition. • However, there seems to be a presumption among insurers that any condition or illness a person has suffered in the past qualifies as a pre-existing condition and can therefore be excluded. This includes illnesses that people no longer suffer from – often mental illness – or which are controlled by medication.

14. Pre-existing conditions (cont.) • In some cases, exclusions have been so broad that generic cancer exclusions have been applied in cases of breast cancer, even though there is only a tenuous link between having breast cancer and developing other forms of cancer. Suggested solution: To justify excluding a pre-existing condition, the insurer must consider the condition that the applicant received treatment for prior to seeking cover and the treatment must have been reasonably recent. Cover should be offered for unrelated conditions.

15. Issues for Discussion Mental disability • When the guidelines were first published in 1997 they did not specifically address the issue of mental disability. However, since that time the Commission has received a steady number of complaints on the issue, with many related to refusal of insurance cover. • While the Courts have said that detailed information is required to justify excluding people from insurance cover because of a pre-existing condition, insurers consider that inaccurate diagnoses of mental illness provided by many GPs have significantly increased their financial risks. Insurers see broad exclusion clauses as way of limiting those risks.

16. Mental Disability (Cont.) • The Commission recognises that mental illness cannot be measured in the same objective way as a physical disorder and that it can be difficult to diagnose. However, it does not follow that such difficulties make it impossible to quantify the risks involved. In addition, certain assumptions and stereotypes seem to be a significant factor in how the industry approaches the issue of insuring mental disability. Suggested solution Insurers should aim to provide cover to people with a mental disability on the same terms as they offer it to people with a physical disability. Exclusions or higher premiums must be justified using information that is relevant and reliable. It is not appropriate to rely on assumptions or stereotypes.

17. Issues for discussion • Potential for genetic status discrimination • Recent developments in genetics, such as the increasing availability of genetic testing, have the potential to raise significant human rights issues for the insurance industry. Under the current guidelines an insurer is entitled to know the results of genetic tests that an applicant has taken but it cannot require the person to take a test. • This current approach recognises the concerns that insurers have about adverse selection. However, this must be balanced against the fact that people required to disclose results of tests could face potential discrimination on the basis of their genetic status. This could include excessive premiums, significant exclusions or the possibility of not being able to obtain insurance cover at all. • Given the complexities involved in using genetic information in insurance, and its potential impact on peoples’ lives, it is necessary to consider whether the present approach in New Zealand is satisfactory. There is currently a voluntary moratorium in place with the insurance industry. While this approach is flexible and easy to implement, it is non-binding and depends on the goodwill of participants.

18. Genetic Discrimination (Cont) • It has been suggested that genetic status discrimination may be best dealt with by law, such as including it as a prohibited ground of discrimination in the HRA. Others have said that the matters are so complex that separate legislation is required. Suggested solution: The current guidelines state that an insurer cannot require an applicant to undergo testing but applicants must disclose any test results of which they are aware. While this approach has advantages, there is little that can be done should the industry decide not to continue the voluntary moratorium. Given the potential implications of how genetic information could be used, it may be necessary to put in place legal safeguards.

19. Issues for discussion Reinsurance • Reinsurance is a key part of how insurance companies manage risk. The contract that an insurer has with their reinsurer may at times be used to limit the conditions under which insurance is provided to a person regarded as a high risk. Some insurers – particularly smaller companies – argue their economic viability may be threatened if they are left vulnerable to large payouts because of the limitations of their reinsurance contract. • The Law Commission has recognised that reinsurance is an important part of an insurer’s risk management strategy. It suggests that there should be greater disclosure in a company’s financial reporting but stopped short of recommending direct supervision of reinsurers.

20. Reinsurance (cont.) • Under the current guidelines reinsurance companies are exempt from the HRA primarily because their relationship is with the insurance companies and not the general public. Arguably, however, the problems that some insurance companies attribute to their relationship with the reinsurers could be better managed if the insurers adhered more rigorously to the criteria for making an exception Suggested solution: The position taken by the current guidelines on reinsurance companies should be retained.