Bruce Cappon�s First Rate Recommendations To The CCIR A Summary Of Changes To Industry Policies

In March 2014, First Rate Insurance late President Bruce Cappon began initiating a two-year advocacy endeavour with a vision to reform the existing pitfalls in many travel insurance policies. Bruce wrote his first submission to the Canadian Council of Insurance Regulators (CCIR), an inter-jurisdictional association of provincial, territorial and federal insurance regulators who are responsible for market conduct regulation and legislative compliance of insurers authorized in their province or territory. Bruce also sought the collaboration of Dr. Jack Allingham, physician, who wrote for professional, peer-reviewed medical journals on the problem at issue. This first submission, entitled “Travel Insurance: The Urgent Need For Improved Regulation” was copied to each provincial and territorial financial ministers in March 2014. It brought forth the existing dysfunctions and possible solutions of travel insurance in the context of post-claim underwriting. This current form of underwriting puts the onus on applicants to underwrite their own policy to determine their eligibility and the premium required. However, only at claim time will the insurer advise the consumers whether their eligibility assessment was accurate. In too many cases, Canadians were horrified to learn their claim was being denied as the insurer rescinded their coverage retroactively. As a result, Bruce was interviewed by the media across Canada. His initiative and high profile prompted the CCIR in their April 2014 meeting to add the Travel Health Insurance on their triennial review. Bruce followed-up with his May, 2015 Memorandum. The focus of his submissions dwelt at length on the misrepresentation-induced contract voidability. Bruce dissected the multiple industry contracts and pointed out the recurrent clauses invoked to void consumers’ policies retroactively. Among his findings were the infamous “Misrepresentation Clause” combined with the dreadful “material fact” terminology. With a definition left up to the courts, this obscure term was widely overused to deny claims leaving honest policyholders perplex and burdened with unaffordable claims. In both submissions, Bruce studied the devastating effects of the Misrepresentation Clause as it interacts with other pitfalls further complicating the consumers’ application process. He identified the following travel insurance hazards:

"Misrepresentation" Clause combined with vague or ill-defined medical questionnaires, main cause for claim denials and policy voiding;

Insurers’ ability to void the policy if an applicant did not disclose a “material fact” whether it was an honest mistake or not;

Arbitrary insurers' interpretation of "material fact" when voiding a policy (e.g.: “any fact that would cause us to decline your application…” – quote from an actual form) Cappon Memorandum March 2014 Pt 6.3 p12 ;

Misrepresentation Clause worsened by the "Doctor Clarity" clause whereby applicants are sent to their physicians for clarification and interpretation of pre-existing conditions or to complete the application when doctors have no grasp of the specific definitions in insurers’ contract. Yet physician’s opinion bears no weight at claim time;
Onus on applicants only to disclose all “material facts” yet the medical questionnaire restricts them to "Yes/No" boxes- no narrative allowed. This conflicts with Section 308(1) of the Ontario Insurance Act expecting applicants to disclose "every fact within the person's knowledge that is material" but the Act fails to define "material" - Definition left up to the courts;
Lack of reciprocity to disclose facts “material” to the application – Insurers inadequate transparency and disclosure;
Lack of causality linking the “misrepresented” question to the pathology surrounding the claim;
Misrepresentation Clause can be triggered by non-eligibility questions on the application;
Unreported change of health, even minor may lead to the unfair voiding of the whole contract;
Post claim underwriting context;
No data collection on the numbers of voided contracts stratified by demographic and claim type (baggage, emergency medical, Trip Cancellation, etc.)

Bruce made the following recommendations:

Link the Misrepresentation Clause to causality and bilateral disclosure i.e. reciprocity;
Only tie the Misrepresentation Clause to eligibility questions;
Revise the Insurance Act to define "material" and make it equally binding on both the insurer and the insured; Failure for the insurer to disclose a material fact, which assists in answering the questionnaire would preclude them from voiding the policy;
If a policy is voidable, implement explicit warning labels on the consequences of incorrect answers on the application;
Remove the "Physician Clause" - not putting the onus on the client's doctor to complete the travel insurance application;
Mandate the collection and publishing of data on claims denied stratified by demographic, causes, and categorized by product;
Mandate fair and transparent marketing of travel insurance products, including full disclosure of the policy wording before purchase. This should apply to all distribution channels including travel agents, credit cards, group plans, etc.

On May 31st, 2017, the Canadian Council of Insurance Regulators (CCIR) finally released their Position Paper after their extensive research, review and consultations with stakeholders (For the full report, look for our “Advocacy section on our website at www.firstrateinsurance.com).

Firstly I want to commend CCIR on their extensive research and consultation process with the various entities, stakeholders and consumers. We are hopeful it will result in a much improved experience and safer environment for the travel insurance consumers although the beneficial effects will be better measured in the coming months if not years. We will monitor the marketplace to evaluate whether CCIR's recommendations are being adopted by all providers and assess the consumers’ satisfaction level.

Secondly, we are pleased to see that many of Bruce's aforementioned recommendations were addressed.

For example, in their Position Paper, CCIR put forth the following suggestions for the industry to implement:

Standardization and clarification of plans’ terminology and standard definitions; List of all relevant terms will be created. Simplification of definitions. Something raised by Bruce Cappon in his March 2014 submission Point. 6.3 and 6.4 p. 12 and p. 13;

Brokers, doctors and consumers will all welcome the standardization and clarification process. Dr. Jack Alligham expounds: “A major problem which goes beyond inter insurer variability, and includes variability on how physicians use terms and how this affects vetting of claims. Insurers must provide concise and consistent definitions and physicians need to be aware of these.” Although CCIR has recommended “all industry stakeholders… provide input in developing a complete list of terms and expressions to be defined and standardized” (p.8, CCIR May 2017 Position Paper) , Dr. Jack Allingham has the following reservation: “The CCIR recommendations are solid here but the list should be vetted by consumer groups and an informed physician group. The industry on its own may avoid strictly defining some terminology. My general impression is that they have put the fox in charge of the hen house”.

Underwriting: On page 5 of his May 2015 submission, Bruce voiced his concerns that “Insurance providers have downloaded the initial responsibility of underwriting onto their customers…Based on the information provided by the insurer, it’s the customer who will initially determine if they are eligible for coverage (not the insurer) and often at what price.”

Not surprisingly, in their review, CCIR discovered an abnormally high number of cases automatically accepted for travel insurance. “95% in 2014...This rate of automatic acceptance is considered to be unusually high by the Working Group, and may be due, in part to the existence of exclusion, restriction and limitation clauses, including those pertaining to pre-existing medical conditions, that allow for insurers not to engage in further medical underwriting at the time the application is made. As such the burden of determining the limits of coverage that apply to the insured and the product’s suitability lies with the applicant, who may not be in a position to properly understand the important conditions that would affect their eligibility or suitability…This burden can be made even more complicated when exclusions for pre-existing medical conditions are applicable given the complex nature of the medical questions and terminology used.” (p.8, 9, 10 pt 2.1.3. CCIR May 2017 Position Paper).

Clearly, this equates to consumers purchasing plans they are not eligible for thus the CCIR rightfully suggests, insurers should have “processes to limit customer access to products likely to be inappropriate”.

Therefore, we are pleased to read their recommendation that insurers should improve their “screening process” and “better assist consumers’ understanding of their eligibility requirements and applicable exclusions at time of application”.

Complicating this further is the fact that “applicants are effectively barred from fully disclosing their medical history” ( pt 6.2, p. 11 - Cappon Brief, March 2014) this is due to the “highly restrictive process consisting of checking off boxes” as opposed to being allowed to provide a narrative. This is highly problematic when insurers are at the same time afforded a voiding weapon under the Insurance Act RSO, which reads: “(a) subject to section 309 and 312, failure to disclose or a misrepresentation of such a fact renders a contract voidable by the insurer. R.S.O. 1990,c.l.8,(2)”

This leads us to our next point on disclosure:

The Need for Reciprocal disclosure: Bruce was confident that achieving “fairness and parity” required a bilateral onus on the insurer and the insured to disclose all material facts relevant to a possible claim. He suggested the sections of the Act be amended so that the term “material would apply equally to both parties”. He further stated:“The critical element in any regulation of medical travel insurance is the imperative of reciprocity between insurers and clients. Equivalent accountability must apply to the accuracy, completeness and transparency of information provided by both customers and travel insurance companies”. (p. 3 Cappon May 2015 Brief). He asserted that “questions and interpretations of policies must be sufficiently clear as to elicit accurate responses from honest applicants” (p 10 2015 Cappon Brief). It was his view that amending the Act would solve the unfair claim denial based on misrepresentation and minimize regulatory requirement.

CCIR addressed his concerns partially. In their Position Paper (p11, point 2.2.1.2 CCIR May 2017 Position Paper) they stated that they expect insurers to disclose all documentation ahead of closing a sale “the need to ensure appropriate disclosure before the product is sold including a copy of the medical questionnaire, the policy wording, etc., and “that insurers must simplify and improve disclosure…” but they did not go as far as to mandate changes to the Act as Bruce had hoped for re: reciprocity of a “material” fact. Still we remain optimistic that with a streamlined, simplified process and full disclosure from the insurer combined with a more stringent screening procedure that the number of claims denied will dwindle significantly especially as these will also apply to all distribution channels e.g. travel agents, employee benefit plans, credit card, group plans “The CCIR has long taken the view that insurers are ultimately responsible for ensuring that anyone selling their products have sufficient knowledge and expertise about the product to be able to explain its features and exclusions, restrictions and limitations..”. (p.12, point 2.2.2. CCIR May 2017 Position Paper)

Claims Management: Through Bruce’s research and anecdotal surveys of attendees at his presentations, Bruce estimated that 50% of claims denied stemmed from the misrepresentation clause. He relied on the approximations from THIA, which stated that 15,000 of reported claims are denied each year and from journalist James Daw’s¹ who wrote that 55% of claim refusals are based on medical misrepresentations bringing the total of claims denied to 7,000 claims. In addition, Bruce introduced the concept of “causality” whereby a claim denied should relate to the misanswered question on the application.

Similarly, CCIR received many consumers’ input on the unfair denial based on this material representation. CCIR asked insurers to “improve their claims handling processes to ensure that consumers are not unnecessarily denied for unrelated health situations or for errors or omissions in applications made by consumers acting in good faith and making best efforts to disclose”.

However, there are several major improvements Bruce was advocating for, which are absent from the CCIR's recommendation, namely:

Amending Section 308(1) of the Insurance Act, R.S.O. 1990, c.I 8 as it pertains to the “materiality” of a misrepresentation to make it reciprocal on both the insured and the insurer to “ensure parity and fairness”. This would ensure that if the insurer failed to provide the material facts to the client then the insurers would be barred from rendering the contract invalid” (Cappon Brief May 2015 Point 5, p.10); and
the collection and regular publication of data on claim denials: "Refusing to collect data and make it public permits the obscuring of common phenomena...If...the collection and regular publication of such data were mandated, improved practice and fairness may well occur under the influence of appropriate public scrutiny..." (Cappon Brief March 2014 - Point 6.1, p.11).

For the time being CCIR recommends data be collected internally only, which is a respectable first step, but would go a long way if it was available to the public.

5. Complaints: In this regard, Bruce was dubious about the recent changes to certain policy contracts whereby an arbitration clause had been added, which was binding on the insured. He was concerned that clients were now barred from accessing the courts if their complaint was poorly handled. Bruce coined it the “Thou Shall Not Sue” clause. It remains to be seen whether the complaint process will be tainted by this new trend.

In summary, we are pleased to see that Bruce Cappon’s advocacy has led to the CCIR adopting his many recommendations in favour of the public. If implemented by the industry, we are hopeful it will result in an improved consumers’ experience and reduced numbers of claims denied, which will reduce the anxiety travellers experience when applying for travel insurance. As brokers working in this industry, we are thankful for all the work the CCIR and all concerned stakeholders have invested and look forward to witnessing the beneficial impact of what could become a turning point for the Travel Insurance Industry.

Isabelle Beaudoin, Travel Insurance Specialist, President, First Rate Insurance Inc., Ottawa.

Email: info@firstrateinsurance.com

1 James Daw – “Just How many travel insurance claims are denied?” – Travel Insurance File, October 31st, 2013 http://travelinsurancefile.com/headlines/just-how-many-travel-insurance-claims-are-denied/