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June 15, 2005 at 08:00 PM
When is fraud really fraud, and should a long term care carrier have recourse after a 2-year period of contestability?[@@]
Those were some of the questions that came up here at the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo., during a discussion of efforts to update the NAIC’s Long Term Care Insurance Model Act.
The NAIC’s Senior Issues Task Force looked at a draft of a proposed revision to Section 7 of the model, which deals with the incontestability period.
Consumer advocates and some regulators said “post claims underwriting” and the ability to rescind LTC contracts after the contestability period ends are potentially abusive.
Insurers said post-claims underwriting and the ability to rescind older policies protect them from consumers who fail to describe their health accurately when contracts are issued.
Insurers are concerned about the possible elimination of a provision that addresses the right of an insurer to contest a policy or certificate if the insured “knowingly and intentionally misrepresented relevant facts relating to the insured’s health.” The current draft reads “After a policy or certificate has been in force for 2 years it is not contestable.”
“Up until this draft, we had deterrence language in there,” said Victoria Femea, a senior counsel at the American Council of Life Insurers, Washington.
When Wisconsin Insurance Commissioner Jorge Gomez asked whether insurers should be able to contest policies for an indefinite period, Femea said, “Fraud is fraud.”
But Gomez asked for specific examples of the need for an indefinite contestability period.
“I don’t know what magnitude of a problem it is for the industry,” Gomez said. “I have yet to hear of when a company has found fraud in an application.”
Gomez added that the industry has not yet shown him that insurers need more than 2 years to find fraud in an LTC application.
Kelley Greenlee, an LTC ombudsman for Kansas, said insurers should underwrite applicants thoroughly when the applicants apply for coverage, just as homeowners should install security systems before being burgled.
