Diana Clement: Read fine print on supermarket insurance

24 November 2014

News Articles , Insurance Law

'Did you see that Countdown is selling insurance?" a friend emailed last week. My initial response was: "There's nothing new in that."

I bought a life insurance policy from a Tesco supermarket more than a decade ago when I lived in the UK. Australians can buy their insurance at Coles supermarkets.

On reflection I realised that buying insurance at the checkout is a relatively new concept for Kiwis, so worth delving into here.

This type of insurance is branded Tesco, Coles or Countdown, but is really provided by an insurer such as Cigna, Southern Cross or Allianz. The supermarket gets a commission for selling the policy.

Countdown isn't the first New Zealand retailer to enter this market. The Warehouse has sold insurance at the checkout for a number of years. If you look at the Trade Me website you'll see that one of the tabs along the top is for life insurance from subsidiary LifeDirect.

We've also bought branded travel insurance from high-street travel agents for years. The House of Travel policy, for example, is underwritten by Allianz.

Countdown and the Warehouse sell travel insurance, pet insurance and life insurance. Countdown also has accidental death insurance and a bill protection policy (also known as income protection), which covers you for up to $2000 a month if you can't work because of illness or loss of your job.

The Warehouse offers credit card repayment insurance, which pays a portion of your credit card bills if you are off work for illness, accident or redundancy.

The advantage of "supermarket" insurance is that it's easy to buy and sometimes it's cheaper than policies sold by brokers. What's more the Trade Me experience has shown that availability through everyday retailers encourages people to buy cover. There's an argument that some insurance is better than none.

Conor Sligo, general manager of Trade Me-owned LifeDirect, says selling via Trade Me has been huge. The company is selling 69 per cent more policies year on year since it appeared on the auction site.

Yet there is a big proviso when buying any health-related insurance such as travel, life, income protection and even credit card protection direct. The catch is the policy wording, which can contain some pretty tricky fine print.

Susan Taylor, chief executive of Financial Services Complaints (FCSL), an organisation that deals with fallout from insurance contracts, has concerns about insurance sold online or through a retailer such as a supermarket. She says customers may not be warned about the importance of disclosing all relevant information to the insurer at the time of applying for the cover.

"In particular, it is extremely important to disclose all pre-existing medical conditions as a failure to disclose could lead to the insurer voiding the policy further down the track." Insurers usually don't cover you for a pre-existing condition.

If you'd had heart problems in the past, for example, then have a heart attack on holiday in the US, your insurer is unlikely to pay out for the eye-wateringly expensive medical bills.

You'd think "pre-existing condition" means something you've been treated for in the past. But it can also be for an illness that you weren't even aware you had. FCSL and the Insurance & Savings Ombudsman have dealt with cases such as this.

The pre-existing medical conditions get-out clause is included in travel insurance policies as well as the bill protection insurance and the credit card repayment insurance policies.

A good insurance broker will make sure a client understands how the policy works and will ask the right questions to try to pre-empt claims being declined. What's more, the broker will try to make clients understand the importance of telling the whole truth when applying for a policy. People who try it on or conveniently don't mention something when they take these policies out sometimes find white lies come back to bite them.

If you're not going to read and understand every word of the policy you're about to buy, you could be throwing your money down the toilet.

The fine print in Countdown's life insurance policy contained some clauses that were difficult to comprehend. Much of the nearly 300-word definition of cancer in this policy was beyond me, and I count myself as being very good at understanding insurance policies. On prostate cancer, it said, "prostate cancers diagnosed as TNM classification T1 with a Gleason score of 5 or less, unless major interventionist therapy (including but not limited to surgery, radiotherapy, brachytherapy or chemotherapy) is performed". That reads as if that if you get prostate cancer and apply for the terminal illness benefit under the policy you could well have a fight on your hands. It's here where a good broker is worth his or her weight in gold.

All of that said, insurance to cover you when you can't work is very useful. Work & Income pays a pittance if illness ends your employment. Even ACC is less than your usual income.

Something like the Countdown bill protection insurance could be a financial lifeline in times of need. It pays out a monthly sum for six months. Income protection bought through a broker may pay more for a longer period, but typically doesn't cover redundancy, which in my opinion is really important for many people.

One disappointment is that some of the policies I looked at aren't any cheaper than going direct to the insurer. On the surface the Countdown basic pet plan came in at $20.52 a month for my cat to be covered up to $3000 a year, compared what I believe to be Southern Cross's nearest equivalent at $24.62. Read the policy, however, and the latter has $2000 more cover and would only want me to make a 20 per cent co-payment (excess) on claims instead of 25 per cent.

The Warehouse PetPlan costs $17.04 a month for my cat for a maximum of $8000 cover, but has a higher excess than its supermarket competitor. The premium is exactly the same price as buying the policy direct from PetPlan.net.nz. At least a portion of your premium is going to a New Zealand-owned company, not an Australian insurer.

I've read a lot of insurance policies in my life. Pet insurance policies come on the trickier end of the scale. It's not like a house or car insurance policy where you've got more or less the same cover whether you're with AA Insurance, AMI or Lumley. The Warehouse pet policy uses 11,746 words to explain what you're covered and not covered for. Countdown's has 6405 words. Pet insurance must be a fine-print writer's dream job.

I certainly hope the supermarkets get into house insurance. We need competition to drive down premiums, which were hiked outrageously and cover downgraded after the Canterbury earthquakes.

KPMG released a report on the insurance market earlier this month in which it said it expected competition to intensify. That's good news for consumers.

Then a couple of weeks ago, Tower announced it is now offering full replacement cover for homes lost to fire. That's something every home owner should be aware of. I plan to jump ship from AMI unless it follows suit.

Cigna/Countdown use one marketing trick that I quite like, although it's not original. The pair have been giving away free short-term insurance policies.

As of Tuesday, Countdown was offering 5000 free grocery protection insurance policies. They are similar to bill protection cover and pay out $1000 a month for up to three months if you become incapacitated through illness or accident. The policy lasts for six months.

Countdown and the Warehouse also offer free year-long $10,000 life insurance to new parents.

Source - NZ Herald