In my last post, I wrote about the insurance industry’s incredible profits over the few years. While this is great for the shareholders of these companies, these profits come at human price.
Some CEOs look at business as war and most generals will tell you that confusing an enemy makes them easy to conquer. Unfortunately some insurance companies are waging war on consumers.
Some insurance companies deny claims after agreeing to insure based on incorrect or incomplete information in a person’s application. This practice is called “postclaims underwriting” (underwriting is just a fancy term for investigation) or rescission”. In most states, it is the insurance company’s job to look into your medical history before agreeing to provide coverage. Like your older brother or sister making you do their chores, postclaims underwriting makes you do their job.
While insurance companies do have a right to avoid paying people who lie on their applications, the companies are using this process to boost profits by denying payment on legitimate claims. This is where the confusion comes into play. Some insurance companies intentionally make their application confusing and hard to understand while insurance agents make no attempt to help the consumer. Also, in some cases, the insurance agent will withhold information from the insurer so that the policy will be approved and the agent can earn a commission.
Postclaims underwriting is one of the factors leading to record profits for the insurance industry in recent times. In 2009 a congressional investigation into this practice found that three insurance companies cancelled more than 20,000 polices in a five-year period. This allowed the companies to avoid paying $300 million in claims while keeping all those premium checks they collected over the years. A double win for them.
So what would you do? You just got diagnosed with cancer and need medical treatment quickly. Your insurance company denied you coverage because of some technicality on the application and time is running out on getting the treatment that could save your life. Now you have to go through the long process of filing a lawsuit to try and get the insurance coverage for the medical treatment you need. Make no mistake about it, postclaims underwriting is one of the most grotesque practices of corporate America.