Do Insurers Actually WANT to Pay Your Claim? | Underwriting Explained | Ep 25

What does an underwriter actually do?

Rory: Welcome back to another episode of the Blueprint Finance podcast. I'm joined by Daniel Lipman, and another special Daniel in the house — Daniel Freeman. He's head of underwriting for one of New Zealand's largest insurers, and he's coming up on 20 years' experience in the industry. He's got a whole bunch of insights we're going to tap into, because underwriting is a fascinating area of insurance, and not everybody has a full grasp on it. We're going to get into risk — the risk insurers are taking on, and how they assess it. So stick around: if you're a policyholder with terms on your cover, this might be of interest to you. If you've got some health conditions and you're looking at insurance, this might be interesting. If you're an adviser, or you're just career curious, this is a deep dive into what underwriting actually is — because unless you're in and around it, you may not know much about it. Really excited to have you here, Daniel. I don't want to talk for too long — we want you doing most of the talking. Welcome to the show.

Daniel Freeman: Thank you very much — happy to be here. It's an interesting one. Underwriting is something most people who aren't in the insurance game don't think about too much, but it's absolutely critical to the way New Zealanders buy life insurance — and that's with bespoke products.

Rory: Can you talk us through your underwriting journey to start with? How did you land in this place — because everyone seems to fall into it — and, in a nutshell, what does an underwriter do?

Daniel Freeman: My journey begins way back in 2004, which is going to age me for some of the audience.

Daniel: You were born in 2004?

Daniel Freeman: I was born in 2004. No — I was at university. My father is an adviser, and he'd recently joined the industry back in 2004 as well. Before insurance I was actually a part-time cleaner while I studied, and he asked me whether I wanted a part-time job at the life insurance company he was working with. I took that opportunity, finished my degree, looked around the big wide world at what might be out there for my career, kept looking a little bit internally — and ended up in a role in underwriting. That's now almost 20 years ago. Underwriting has changed a lot in those 20 years, and we'll get into some of that. But when you ask yourself, "What is underwriting?" — it's about making sure each person is offered terms on a policy they may wish to buy that are fair and commensurate with the risk they pose to the insurer on the day they apply. In New Zealand, all the major insurers have non-cancellable contracts in life insurance, which means that if we offer you cover and you choose to accept it, there's no ability for the insurer to cancel that cover just because you've claimed.

Rory: Great point — sorry to interrupt. Quite different from fire and general, where it's a yearly contract, and if the risk elevates for them, they're like, "See you later."

Daniel Freeman: Absolutely.

We can make terms better. We can never make terms worse.

Daniel Freeman: So we lock in these terms. When you apply for insurance, you're presented with an offer of terms — or standard rates, which just means there are no additional loadings or exclusions applied to your policy. Effectively, as long as you pay your premium, that cover continues until either the benefit expires, for things like income protection, or for as long as you keep paying your premium, for things like life cover and medical cover. And we can always make terms better. We can never make terms worse. Even if you have changes in health, your terms will remain as they are.

Daniel: Sorry, Dan, quick question — is that unique to New Zealand and some other markets, or does the whole world do it the same way?

Daniel Freeman: It's relatively unique. The New Zealand life insurance market is actually relatively advanced in terms of the quality of our products, and I'd say that's driven by our rating houses rating the products. In New Zealand, the vast majority of everything that's sold is what we call term life — there's no investment component to it. You buy a life insurance policy, and if you choose to cancel it there's no residual value, because we're not taking additional premium to fund a guaranteed payout. Whereas in a lot of the world, especially through Asia, they're really insurance and investment products bundled together — what are called whole-of-life products. New Zealand used to sell these too, but they're very rare these days, and those who still have them have probably had them 30 or 40 years by now.

Rory: Interesting. So you get a couple in their 30s, they sign up for insurance, and you get one crack at assessing their health and risk — and they could be on the books for 30, 40, 50 years, potentially. So it's crucial that you make that assessment well. What are you looking for, specifically, when people apply for insurance?

Daniel Freeman: We're looking at the product you've applied for, and we're trying to ascertain whether, at the date you apply, you're at increased risk of claim for any of your pre-existing health conditions. For example, let's say you're applying for life cover and you have high cholesterol. You're not the best at taking your medication — you sometimes forget — so your cholesterol levels are a little bit high. High cholesterol does increase your risk of things like cardiovascular disease, so it may increase your risk of passing away if you don't control it. Therefore maybe we need to charge you a little bit extra versus someone the same age, gender and smoker status as you who either doesn't have high cholesterol, or is taking their medication and bringing their levels back under the clinical maximums.

Rory: Brilliant. So you start at a standard risk, which is like a population risk. Take Daniel Lipman: 30 years old, lean machine, class one, no health conditions — bit of a dodgy back, actually.

Daniel: We'll get to that later.

Rory: We'll get to our musculoskeletal exclusions. Versus the same exact guy who's got a bit of high cholesterol, or a knee injury —

Daniel Freeman: You've actually touched on something that people who aren't deep in insurance sometimes misunderstand: we're not comparing you to someone your age — we're comparing you to someone who theoretically has no condition. One of the most common exclusions we apply is the lumbar and/or sacral spine — AKA the lower back. A lot of clients on benefits like medical cover and our disability income products may say, "Everyone has lower back pain." Which is true to a point — a lot of people have lower back pain, and there are also a lot of people with lower back exclusions as a result. But what I'm sitting here thinking is: you have this lower back pain — are you more likely to claim for your lower back than someone who has never had lower back pain? That's what you're being compared to. You're not being compared to another 50-year-old builder. You're being compared to a theoretical standard risk, because every single person is compared to that same theoretical standard risk.

Rory: Got you. And age is already factored into the pricing anyway.

Daniel Freeman: Correct.

The "it won't happen to me" problem

Daniel: It's a really interesting thing to consider from my position, because the stage I'm entering now — I think we refer to it as the settlement stage — is the time you need it the most, right? You've just got a big mortgage, you're about to start a family, people are going to depend on your income. That's when you've got to start looking at these products. But like you were saying before we started recording, that's usually when people are only just starting to think about insurance — and it really is the time you need it most.

Daniel Freeman: Absolutely. I'll give you a couple of examples from my personal life — and I'm obviously not going to name names. The brother of a former colleague was a kiteboarder, and unfortunately passed away in a freak kiteboarding accident. Kiteboarding is not the most dangerous of pastimes, usually — but he did pass away, and he left a wife and three young children. Completely unexpected; a very healthy young guy. Another was my wife's friend's husband. He thought he was fit and healthy, was out mowing the lawns, came inside feeling unwell, and passed away of a fatal heart attack at the age of 42.

Daniel: Oh my gosh.

Daniel Freeman: Both of those people, I believe, did have insurance, and the insurance did help their families after their sudden passing. But New Zealanders all think it's not going to be them, right? The way I see it: if I go through life and get to a point — not yet, but one day — where I may not need insurance because I'm financially secure without it, and I've paid all these premiums and never made a claim, then I'll consider myself lucky, rather than unlucky, to have paid those premiums and not had to claim.

Rory: Absolutely. Most people in New Zealand driving around have their cars insured — it's not law, but most people do it. And you're not driving around looking for a prang, you know? But you're still covered. Your health is the same.

Daniel: Same with your house insurance. That's obviously a requirement if you've got a mortgage, but you're not five or ten years down the line going, "Geez, all that money and we didn't even have one house fire."

Rory: You're dead right. If you can get through life as a donator to insurance, that's a good thing — you've not left things to chance.

Mental health is a major insurance issue

Rory: I want to get straight into a really interesting topic, and it's mental health. It's something that affects — I think it's like one in five New Zealanders, but probably more.

Daniel Freeman: On a lifetime basis, it's about one in two New Zealanders — I think it's something like 44% of all New Zealanders will have some sort of mental health episode in their life. And it's about 15% on an annual basis.

Rory: 15% of the population have some sort of episode each year.

Daniel Freeman: Correct — and I guess what defines an episode is always difficult from a mental health point of view. But it is hugely important. I've spoken about the changes in underwriting over my 20 years in the industry, and I will say that as a country we are so much better at talking about mental health than we were when I first started. I think that's an incredibly healthy thing for us as a country — being able to talk about our problems rather than bottling them up. That kind of Kiwi bloke "I'm just going to keep all my problems to myself" attitude is dissipating over time, and that's a good thing. From an insurance point of view, though, it is hugely important. I believe these stats are correct to 2023: there's something like 7.4 million days of work lost to mental health every year, costing the economy about $1.8 billion.

Daniel: That's a pretty bleak way to look at it, aye? That's a hell of a statistic.

Rory: That's why he's got the big job.

Daniel Freeman: So while it's great that we're talking about it as a country, from a risk point of view, when I'm assessing a potential client I need to be cognisant of the fact that mental health is the number one cost of claim in New Zealand for our disability income product — that's the one where you're off work for a period of time, unable to work, and a monthly benefit is paid.

Rory: Is it by quite a big margin?

Daniel Freeman: Not by a big margin in terms of dollar amount — on quantity, we actually receive more musculoskeletal claims, especially in the tradie world. If you break your wrist as a tradie, you're probably not getting back on the building site until your wrist is strong enough to complete those manual tasks. But mental health can take absolutely anyone off work at any time.

Rory: And are you still seeing long-term claims?

Daniel Freeman: Yeah, absolutely. There are people with significant mental health issues who will probably never return to work who are on claim. And I would say I'm pleased they were sold products in time — prior to their mental health episodes actually occurring — and that the product is working for them. It's a good thing. The one thing I think people believe is that insurers don't like paying claims. It's the reason we're in business — we're in the business of paying claims. It's not about not paying claims; it's about making sure we pay the right claims, as per our policy wording — what we've priced our products to pay.

Disclose everything — even if you think it doesn't matter

Daniel: And I suppose that's the important area where the anxiety comes in for a lot of Kiwi — this idea, even if it's not something that's true, that "I'm paying for this insurance, and one day I'm going to have to call on it." For myself — Rory would probably say I'm insured up to the gills —

Rory: You're well covered, yeah.

Daniel: There you go — my adviser thinks I'm all good. When I think about my situation, I'm insured because I want to make sure that if something happens, my legacy is covered. But as someone who's always trying to be a forward thinker, you take it a step further and ask, "Have I really done everything I need to do to make sure I'm going to be paid?" So something I really want to discuss with you is this idea of disclosure and medical records. How should we be approaching that? Should we be going above and beyond to disclose? Should we be giving full access to medical records? Do insurers have access to your online health records?

Daniel Freeman: Great question. I would say to everyone out there thinking about applying for insurance: make sure you disclose everything. You may think it's not relevant, but let the underwriter make that distinction rather than you. Let's say you broke your arm two years ago, and you've got a big piece of metal in your arm because that's where they reattached it. You're thinking, "It's totally fine now, I have no symptoms, therefore I don't need to disclose it." But the companies will all ask about surgeries and recent hospitalisations. If you choose not to disclose it, you may think, "Great, my arm's covered" — and then a couple of years down the track you develop osteoarthritis in that arm, and you think you're fully covered, and you're not. If you disclose everything, you can make an informed decision — in a case where you may receive exclusions, which means we're not going to cover certain things, or loadings, where you pay a little bit more than the base rate. It's not in anyone's best interest for that conversation to be happening when you need the money the most — which is at claim time.

Rory: The informed decision is a really good point. And the other thing is you may cut yourself off from the exclusion review. You may have something you've recovered from that's still a risk in the insurer's eyes — but give it another 12 months and it may not be a risk. If you've not disclosed it and it comes up, they'll go back to the time of application. Would they not consider that, if this had been excluded, they would've reviewed it after two years?

Daniel Freeman: I can't speak for all insurers — and just to be very clear, I speak on my own behalf. But at the insurers I've worked at, we do consider whether we would have reviewed the exclusion off in cases of unintentional non-disclosure — where you've genuinely forgotten something. Let's take a real basic one: you went to your GP, you strained your back, and the symptoms lasted a month. That's something that happens to a lot of Kiwi. Most insurers would exclude that and offer a review — say, 12 months treatment- and symptom-free. That would be pretty normal. Now say that back strain happened a month before the policy commenced, and three years down the track that person is in a major accident and breaks their back. The insurers I've worked at, at least, would look at that favourably — though my understanding of the law is that they don't legally have to. It's one of those things you don't see so much, and you probably don't hear the stories, but I do believe insurers in New Zealand try to do the right thing. There are claims paid to clients outside the exact policy wordings, because it's the right thing to do.

Rory: 100%. And that's another demonstration that, in typical terms, insurers are looking for the way to pay the claim — not "how do we get out of it". Here's a clear way out of a claim, but they're looking at it from a fair and reasonable angle and asking, "If everything was known, and the process was done with reviews, would we have covered this? Yeah, we would have. Let's pay the claim."

Daniel Freeman: Just touching back on the medical records thing: when it comes to disclosure, insurers enter into these contracts in good faith. We're assuming you're telling us the truth, and we'll take your word for it. I'll give you an example. Let's say you've got high blood pressure and you take medication. One of the questions you might be asked is, "Have you been told your blood pressure is normal?" If you say, "Yes, I've been told my blood pressure is normal," insurers will say, "Okay, you have well-controlled high blood pressure — we're not going to apply any terms as a result." If you say, "I have high blood pressure and I take my medication every day, but I don't know what the readings were," all the onus goes back on the insurer to check with your GP and obtain a copy of your medical records to see whether your blood pressure is well controlled before offering you terms. If the insurer chooses not to, they'd be deemed on notice — so effectively anything relating to that couldn't be re-litigated at claim time. So I would say: tell the truth, tell the insurers everything — and if you know the answer to the question, feel free to tell us the answer, because we don't get notes on every single applicant. If you apply for cover with us, disclose nothing, and you've got a normal height and weight, we're not going to go fishing around for notes. Back in 2008 there was a privacy commissioner ruling — you can probably find it online — where a couple of insurers at that stage were asking for five years' worth of notes too many times, and the privacy commissioner gave them a little slap on the wrist: please ask for the things you actually need to make an assessment. So if you disclose something quite major — say you're applying for life insurance and you disclose that you're diabetic — all insurers will get notes so they can check the control of your diabetes and any complications associated with it before offering terms. But we'll ask for things relating to the diabetes, not all your notes from day dot.

Daniel: And that's at claim time?

Daniel Freeman: At application stage.

Daniel: Okay, perfect. That's really reassuring. I think last time we had an insurance podcast, you had this amazing statistic — something like 93% of claims get paid.

Rory: It changes every year, but I've never seen any insurer we work with in the 80s. At worst it's probably 90 or 91%, and a lot of companies at the moment are around 90 to 95 — even some companies offering medical are in that range, which is where I'd imagine you get more declined claims. So yeah, they're paying out a high number of claims. And a small number is non-disclosure, right?

Daniel Freeman: Non-disclosure is a hard one, because there are certainly some people who are told by their specialist that they may need surgery, and then apply for insurance. That's the vast minority of people — and it's actually not in anyone else's best interest that we pay those claims. The reality is that insurers pay claims out of the premiums we receive; that's how we have the money to pay them. We don't want to be the ambulance at the bottom of the cliff — where you've already fallen off the cliff, and then you need the ambulance to come and get you. We want to be there to protect people who took their cover out before the medical events occurred. Because if you take out cover and claim straight away — let's say you need knee surgery, which is easily 30 grand — it takes a lot of people paying into the pool for the insurer to pay for that $30,000 claim. Underwriting is really about protecting all of our existing and future policyholders: if everyone's receiving the correct terms, everyone pays the correct amount — and we pay the correct amount in claims as well.

Rory: It's a sustainability thing, isn't it?

Daniel Freeman: Absolutely. We want to pay claims, but we can't pay claims in a way that's unsustainable as a company.

Medical inflation is getting expensive

Rory: And it's interesting — on the medical side, medical insurance pricing is going up across the board, and claims numbers seem to be on the rise. In recent times one of the big health insurers has been paying out more in claims than it's receiving in premiums. Which brings me to question group health cover a little bit, where there's no underwriting — quick synopsis: an employer covers two, three, four, five hundred staff, and the insurer accepts the risk of everybody. How much do you think it's to do with that — non-underwritten cover — versus just medical inflation and public health system strain?

Daniel Freeman: Let's touch on medical inflation a little bit first, because people may not know what that is. Everyone feels the cost of living at the moment, right? General inflation is running — I think it's back up around 4%, and they're hoping to get it back down to about 2%. We would love it if medical inflation ran at 4%. The price of procedures and investigations goes up more every year — more and more and more. I think across the industry last year, the average health insurer increased their premiums by over 20%. And when people receive that bill from their medical insurer, they may be thinking it's because the insurer is making a bunch of money. The reality is that it's merely catching up to the amount of claims received.

Rory: Which is a good thing, but it shows the public health system is strained as well, right? Because you have medical insurance, you can go public or private — and because the public system is probably a little bit behind, everyone's going private. Which is absolutely fine; that's why they buy the cover.

Daniel Freeman: Medical inflation would usually be more like 10% — but based on last year's premiums across the industry, no insurer in particular, it was more like 20.

Daniel: I imagine it's just an absolute snowball in the medical industry, because every year the technology is developing — new technology, the costs, the R&D. Everything is getting so much more expensive on that side of things.

Daniel Freeman: Yep. And one of the main reasons a lot of people buy medical insurance is to get non-Pharmac-funded drugs. Those drugs are absolutely great, but they're not always the first line of treatment. Probably the most common is cancer drugs: the public system funds a lot of different types of cancer drugs, but often you get to the end of those, and you're out of options in the public system — and there are private drugs available. Those drugs can run into the hundreds of thousands of dollars a year. So that's certainly why people buy medical insurance — so they have more options.

Rory: It's fascinating, aye. As advisers, we know non-Pharmac drug claims are super high. But is that what all medicine costs? Is the government absolutely subsidising everything?

Daniel Freeman: Probably not. A lot of these drugs are just new to market, so they're under patents and trademarks from the companies that developed them. Going a little bit adjacent: the GLP-1 weight-loss medications at the moment remain pretty expensive. They're the new wave — historically people took things like Xenical, and only had surgical options for weight loss. GLP-1s are the new form: Wegovy, Ozempic —

Daniel: Zepbound.

Daniel Freeman: This new class of medication. You can't get it through insurance in New Zealand, and because they're all made by one or two companies, due to the patents, these medications cost a lot — I think Zepbound is about 10 grand a year to be on for weight-loss purposes. And the average weight loss is about 22% on these drugs. Once they come off patent, the cost will probably come down, as more companies can develop generic alternatives. It's the reason you can pop into your local pharmacy and get a hundred-box of paracetamol for five bucks. Not all medications are expensive — that's because everyone can make paracetamol.

Daniel: Quick question — a little bit of a digression — but why can't we get very good dental cover in New Zealand?

Daniel Freeman: I'm actually not 100% sure. We'd have to price for it, right? Dental can be very expensive. Effectively, at the moment, insurers tend to have two buckets of products. One is a GP-type cover offered by some of the larger insurers with limited underwriting — that's there to cover the day-to-day stuff, and it may cover things like prescription glasses. The second bucket — the one I'm more heavily involved in — is the major medical stuff. That's there to cover the big stuff: the claims are almost always in the thousands of dollars. Even something as simple as a colonoscopy — where they check your bowel out because you've got abdominal pain or rectal bleeding or something like that — is going to set the insurer back probably three and a half thousand dollars. And that's a pretty cheap claim in the grand scheme of medical cover.

Rory: What are some of the less-known big claims you're seeing — the brain surgeries, the back surgeries?

Daniel Freeman: The most expensive claims tend to be one of two things. One is spinal surgery — those spinal surgeons are hugely skilled at what they do, it's incredibly complex, and those can run into the six figures. And then the non-Pharmac drugs — and it's not just cancer; there are others, like autoimmune conditions, that can have non-Pharmac drugs — but in general, cancer drugs running six figures as well. I haven't seen a seven-figure claim yet, but I think it's probably coming. When I first started, I worked at a company that also sold medical insurance, and the big claims were 50 or 60 thousand dollars. These days, a basic knee surgery is $30,000. These are major surgeries, don't get me wrong — but in terms of complexity for a surgeon, they're not hugely complex, and they still run 30,000.

Rory: It's just a fact of life, right? Addressing this part of the risk of living is going to keep getting more expensive, so you've got to do something about it — insurance in place, and a plan going into retirement. I've got some clients in their 80s who did all the right things, and they're retiring very well. They've kept their medical insurance policies — they're paying, I think, $13,000 a month — and they're absolutely loving it. They said, "I just got a couple of new hips, a new knee" — and they're up for all the same benefits young people get. So it makes sense for them to keep it.

Daniel Freeman: I know someone who, at the time, would have been in their early 70s, with significant hip degeneration. They went into the public system and asked whether it was plausible they could get a hip replacement, and the answer was, "You are nowhere near bad enough to require a hip replacement." But this was impacting their ability to enjoy their twilight years and to travel while they still had the mobility to do so. So they ended up funding their own hip surgery — and that was six figures.

Rory: Just with cash?

Daniel Freeman: With cash. So that was an option they had for themselves. But I'm not sure a lot of people are planning for six-figure medical expenses in their early retirement — and what impact that may have on their later retirement.

A risk assessment, not a diagnosis

Rory: Can we loop back quickly to mental health? It's underwritten harshly, I suppose — we sometimes describe it that way, and we explain the reasons around the claims ratios. But not everything's fair, you know? It's not a fair world. My example would be the Kiwi bloke we spoke about, who actually does sweep his feelings under the rug. He's a battler, he's got no medical record, and when he does an application he's like, "Nah, my mental health is fine." Versus the honest mum who's looking after her health, and she gets a bit of work stress. That's sometimes a difficult thing for us to have to explain to a client.

Daniel Freeman: I understand why. When we talk about people and their medical history, it's very personal. I guess, having done this job for so long, I'm somewhat desensitised — nothing really shocks or fazes me these days when it comes to people's health. But in reality it's incredibly difficult. I'm not dodging the question — I'll definitely come back to mental health. When we talk about the guy who was snowboarding last weekend and blew his knee out, you sit him down and say, "Look, we're not going to be able to cover that knee. Your covers will cover everything apart from that knee — but it happened before we put the policy in place, and therefore we can't cover it." Most people will say, "I understand that, I can get behind that." In general, people don't feel too offended by that as an underwriting outcome. But when we talk to people who have had mental health events in their life, or may still be being treated for their mental health, they can feel that the underwriters can't empathise with the situation they present. There are a lot of people who have done incredibly well to make it through some incredibly tough situations. But from a risk point of view, they do represent a greater risk of going on claim — of being part of those 7.4 million days of work New Zealanders lose to mental health. And if they're at increased risk of that on the day they apply, then we may need to exclude claims relating to mental health. It's not that their situation is unreasonable, or that their reaction isn't completely understandable. It's merely a risk assessment.

Daniel Freeman: I guess that's one of the divergences between what I do as an underwriter and what people's GPs say. I'd just like to make it very clear: I'm not a doctor. I've been underwriting for a long time now, but I'm certainly not a doctor. Your GP's job is to diagnose you and make you better, or to manage your chronic health conditions. My job is to make a risk assessment. If you give me an X-ray, I'll look at it like everyone else and say, "Oh, that looks a bit funny" — I don't know how to read an X-ray. But I can tell you the risk associated with the degenerative changes seen on that X-ray, and the likelihood of that leading to a future claim. That's what I can do. So from the mental health point of view — and we're not talking about any individual here, this is just in general — it's not an indication of whether the reaction was fair against the situation that led to the mental health condition or episode. It's that these sorts of situations are what insurers see as a precursor to clients having extended periods off work and claiming for their mental health.

Rory: Such an interesting point when you bring up the GP, because you'll get clients who say, "I've spoken to my GP, and they've said this is not an issue at all" — and it might not be mental health; it could be any health thing. But the GP is not on the hook for potentially a million dollars' worth of claim. So the risk assessment — how they look at your health — is completely different for the insurer, which is collecting a couple of hundred dollars a month but is on the line financially, and has a whole pool of customers to look out for.

Daniel Freeman: Yeah. And again — it touches back on something right from the start of the podcast — we give you these terms, and as long as you accept the terms, they're there forever. Let's say you go to your GP for your annual check-up — hopefully people go for annual check-ups; they're good things to do — and your GP says your blood pressure's a little bit high, and maybe you should cut down your salt intake, eat some more vegetables, go for a run, and we'll check it again in six months. That's what some GPs will do. Another GP might say, "Based on your family history, your overall risk profile and the fact that you're a smoker, I'm going to put you on medication immediately." And some GPs won't do anything at all. In their professional opinion, that's the best way to treat the individual. I don't have that ability — I have to give you terms today. And if it is high blood pressure and it gets better, we can always review terms to make them better than they were when we put the policy in place. We can never review them to make them worse. If your blood pressure was a little bit high and we accepted it, and then it skyrockets and you decide you're never going to treat it — the cover still remains in place, irrespective of the fact that person may be choosing not to treat the condition as their specialist or GP recommends.

Rory: 100%. One thing I wanted to touch on: you're assessing risk, and elevated risk, but it's not always like that. There's the application, sometimes additional tests, GP notes. You're not doing that necessarily to try to exclude something — because if there's a way for you not to exclude it, you won't. Sometimes you actually want more information so you can offer the client better terms. You might have a guideline that says this is a loading, or this is excluded — but with more information from the client, you can offer better cover. It cuts both ways.

Daniel Freeman: Absolutely. And one thing, in my role — I really appreciate the role of the independent financial adviser, and the ability to find the best terms in the market. People may think of the insurance industry as some sort of homogeneous decision-making thing. There's a lot of variance between the companies in the way they view risk, and having an independent adviser who's able to find the best terms in the market is actually good for everyone. It's the best thing for the customer, because they're going to get the best products and the best underwriting terms — terms that are sustainable for them in the long run.

Rory: 100%. And it's such a niche thing. It's not always like this, but it can be as extreme as no cover offered at one insurer, and standard rates over at another. You're looking at the risk differently across the board.

Daniel Freeman: Absolutely. I'll always say I'll put my best foot forward in terms of what we can offer, but no insurer in New Zealand should ever tell advisers or consumers that they'll be able to offer the best terms every time — because risk is just viewed differently. The way risk is assessed is quite similar between companies; it's the fringe cases where it differs.

Do you need to tell your insurer if you start skydiving?

Daniel Freeman: I'll give you an example. One company may allow people to go skydiving at standard rates up to a certain number of jumps per year — if you go tandem skydiving, that's standard. Another company may say, "You're throwing yourself out of a plane at 20,000 feet. That's clearly more risky than staying on the ground, and therefore we're going to exclude claims relating to skydiving." People may ask, "How can one company go standard while the other says it's so risky they won't cover it at all?" The answer is that it's competitive: the company that isn't going to apply terms to someone who goes skydiving is going to win a whole bunch more skydiving business. If they don't think they'll receive a lot of claims out of that group of people, they'll have more clients on the books, which they believe will be a profitable outcome for them. So it's not always the same — every insurer will have different places where they're stronger and weaker.

Rory: The amount of videos I've seen on social media of people jumping out of planes without the parachute, or jumping off a bridge without the cord attached — I'd probably be rating for it, aye.

Daniel Freeman: You'll never see me up there. A long time ago a friend bought me one of those sky jumps for my birthday, and it went uncashed. I'm okay, thank you — I'm more of a stand-on-the-ground sort of guy.

Daniel: Regift it.

Rory: Exactly. I did one in Croatia, on Hvar — it's an island — and it was terrifying. You open the door of the plane and you feel like you're going to get blown away. But anyway — did the thing, free-falling, and then of course eventually you pull the chute. Now, I'm a below-knee amputee, and you come to a sudden stop as that parachute extends — and with the downforce on my leg, I was so close to losing it. I have lost it on a vertical bungee in Wellington before. But if it had come off over Hvar Island, I might not have got that one back.

Daniel: Oh my God.

Rory: Midway through my Croatian holiday.

Daniel: This opens up a really important conversation. Obviously, now we've got the insurance, we've all been approved — do I have to call my adviser every time I want to do an extreme sport, just to check I'm all good?

Daniel Freeman: The answer to that question is actually no. The way insurance works — again, in the life and health world that I live in — is that the cover is non-cancellable. So if I go through a midlife crisis and decide I'm going to start driving rally cars, the rally driving is covered — because the change in pastime, the change in occupation, all of these changes that occur after the commencement of the policy, are still covered. Some people do inform us of changes, and if the change is a positive one that will positively impact the policy, we look forward to hearing from you. If it's "negative" — in inverted commas — meaning a greater risk, like you've started skydiving, you don't have to tell your insurer. As long as you weren't doing it before the commencement of the policy, it's absolutely no problem.

Daniel: That's so interesting, and that's valuable to know. So if I leave my career as a mortgage adviser and become a deep-sea oil driller —

Rory: You might as well do some explosive work underwater while you're at it.

Daniel: Something like that. A properly hazardous job.

Daniel Freeman: Then effectively, yes — you'd still be covered.

Rory: The most important thing is just to make sure you nail it on the way in. Be completely honest with your insurer, get everything you need on the way in, and you're sorted.

Daniel Freeman: Absolutely. And then you don't have to think about it again.

Vaping is treated like smoking

Daniel Freeman: Another interesting one, at least from my point of view, is smoking. The way all insurers in New Zealand treat smoking is that both smoking and vaping are considered smoker-related. We haven't really touched on this, but the price you pay an insurer is based on your age, your gender and your smoker status. And smokers do pay more, given the risks associated with smoking. If you quit smoking — I think I speak for all insurers here — you'll be changed to the non-smoker rates after a period of 12 months.

Rory: Right — so 12 months smoke-free, across the board, and you get non-smoker rates. Brilliant.

Daniel Freeman: Well — yes and no. You still carry the risk, right? The residual cardiac risk takes about 15 years to go back to non-smoker levels, whereas as an industry we allow people to change after 12 months. And if you start smoking again — which we've seen before: clients who were on smoker rates quit smoking for a period of time, then often some event happened in their life that triggered them to start again — the increase in cover they take out the second time is at smoker rates. But the cover they originally took out at smoker rates, which got changed to non-smoker rates, remains at non-smoker rates. Because deciding to take up smoking is a "negative" change as well. It doesn't happen a huge amount — there's not a big part of the insurable population, which tends to be 30- and 40-year-olds, suddenly deciding after being lifelong non-smokers that they're going to start smoking — but it does happen occasionally.

Rory: That's quite generous, aye? Because I know heaps of people who've quit for even two or three years and then started again. And the extra premium for being a smoker is up there — in some cases double, at least 50% more.

Daniel Freeman: It absolutely is. And again, when I come back to this — the insurance industry is a competitive market. If you were the only company demanding, say, a two-year smoke-free period, you'd lose business to your competitors, because all those people who'd quit smoking for 12 months would just be written somewhere else, legitimately, at non-smoker rates. That's the way the industry works.

Daniel: It really is generous, because I've read some statistic that your lungs need something like five or six years to recover if you're a daily smoker.

Rory: You could have been hammering the darts for decades. Two packs a day.

Daniel Freeman: I've known a few two-packs-a-day.

Rory: And pretty much across the board, it's completely smoke-free — so you're not allowed to be on the nicotine gum or the patches. No vapes.

Daniel Freeman: No vaping — vaping's the same as smoking, and people somehow think it's different. Vaping's an interesting one. If we believe the Ministry of Health — and I'm not going to provide any personal opinion on this — the Ministry of Health does think it's a lower-risk alternative to smoking. But at the moment, to the best of my knowledge, all insurers in New Zealand only have two buckets: a smoking bucket and a non-smoking bucket. And just like the skydiving: if an insurer believed vaping was such a low risk that they could charge non-smoker premiums to all the people who vape, they'd get a lot of people — there are a lot of vapers out there. At the moment, to the best of my knowledge, anyone vaping nicotine will be on smoker rates at all companies. So should there be a third bucket for vapers? Maybe one day — but you'd need enough actuarial data.

Rory: I was going to say — enough people to know what the risk actually is.

Daniel Freeman: At the moment I don't think there's enough data on vaping and mortality and morbidity rates — the chance of passing away, the chance of becoming seriously ill. Probably another 10 or 20 years, though. And if a company did come out with a third differential rate for vapers — to the best of my knowledge, no one's working on this — then maybe they'd win a bunch of business.

Rory: What about harder narcotics — or marijuana?

Daniel Freeman: Marijuana's a really interesting one, in the fact that marijuana is very widely studied — it's obviously legal in many parts of the world, and we had a referendum that failed in New Zealand. I'm talking about illicit marijuana here; we'll talk about medicinal marijuana afterwards. Illicit marijuana can be used, and you can still get all covers, depending on the frequency of use.

Daniel: Oh, wow.

Daniel Freeman: So if you're an infrequent marijuana smoker — let's say you smoke it less than once a month — you can have all covers without any terms. What we're saying with that is that the long-term impact is probably not very significant — although marijuana tends to be smoked unfiltered, so there's still tar and things like that. Medicinal marijuana is something we didn't see 10 years ago, and we see a lot of it these days. I believe I speak for all insurers — though if this is you, contact your adviser or the individual insurer — but in general, we treat medicinal marijuana for what it is, which is medication. Again, I'm not a doctor, and I'm not here to say what the correct medication is for an individual. If someone uses medicinal marijuana, it's no different in our minds to using any other form of medication — we'll rate for the underlying condition it's been prescribed for, but we don't rate it as illicit drug use.

Daniel Freeman: When it comes to harder drugs, most insurers don't take the kindest view of the use of harder illicit drugs. And I will say again: it's really important that you disclose these things. The last thing you want is to think you're covered, and to find out at claim time — when your GP records say you've told your GP you use X, Y and Z on the weekends — that the insurer would never have put cover in force if you'd told them. All insurers will ask about illicit drug use.

Rory: And from general knowledge of hearing back from clients — in most cases, if it's within reason, there'll be a pathway to getting covered.

Daniel Freeman: For sure. Individual circumstances will vary, and outcomes will vary from company to company, but the general rule of thumb is they'll look at how often you used it, whether you had health impacts from your drug use, and then potentially, after a period of being drug-free, covers become available — depending on what the covers are.

Rory: 100%. We've had the professional worker — an athlete — who did some party drugs at a stag do, and it was a while ago, and the insurer's gone, "Okay. We'll let that one slide."

Daniel: I'm pretty sure stag dos are exempt, last time I checked the policy wording.

Daniel Freeman: Oh, mate, I don't know — I haven't checked the underwriting guidelines on that one. But it's one of these things, right? You're talking about past applicants who disclosed their use, and you've been able to get that over the line with the insurer through full disclosure. They told the insurer absolutely everything: "I have this history, it was one-off illicit drug use, that was three years ago, I have no health impacts." The insurer may have popped off to the GP just to check the medical records and make sure there were no health impacts — so there are no surprises. That person didn't leave it to chance. It's different from the person who doesn't tell anyone, then has some event happen, and then has to have that discussion at claim time —

Daniel: Praying it's not going to hold up.

Daniel Freeman: So I want to say: the person who has told the truth, had the conversation with the underwriter and had it accepted has done the right thing for themselves.

Rory: 100% — you get it all out there. Let's say you get deferred, and it might be the same across the board — there's no cover available now, but after two years, you're not a big user, you were young and now you've grown up, they'll offer you cover then. Versus keeping it under the hood, getting 10 or 20 years down the line having forked out a lot of cash, and then it comes up to bite you. It's better to be transparent and make the informed decision.

Daniel Freeman: Absolutely — although it's less likely to happen on a 20- or 30-year-old policy. Insurers' claims teams will look at the age of a policy. If there's a 30-year-old life cover policy for 100 grand — which is a lot of money, but in the space of life insurance is actually quite a low amount — they're probably not going to dig too hard; they'll just pay the claim. And there are laws, especially around life cover, about how long a policy has been in force and how much intentional misstatement must be found. I don't want to get into the legalities — I'm not a lawyer, and I didn't brush up on that enough — but life cover is treated slightly differently under the law in terms of the barrier for an insurer to say no to a claim. The courts have seen what's happened over the years, and they're trying to protect consumers.

From 40-page paper forms to AI underwriting

Rory: We're probably getting towards the end, but can we talk a little bit about the things that have changed over the years — paper applications to digital? Is AI being used on medical records? Are there privacy issues there? What are the big changes?

Daniel Freeman: When I first started, it was all pieces of paper. The application forms were about 40 pages long — big, long lists of medical conditions, and you had to tick yes or no to every single one.

Rory: Faxing stuff over — always missing questions, questions not answered.

Daniel Freeman: Fax it in. One of my first jobs when I started — while I was still a university student — was to call people and ask them about the boxes that had been missed. That was the way it was done for many, many years. Then somewhere between six and eight years ago, most insurers brought out online applications. An online application has recursive questioning: it looks at the benefit you've applied for and asks questions relevant to that. If you're applying for life cover and you disclose a broken arm, most of them won't even ask you any questions — there's nothing you can tell me about your broken arm that's going to affect your chance of passing away. So they're a lot more clever. That's stage one — what we call underwriting rules engines, and most insurers have them these days. They're very linear: if you follow this flow, you come to this outcome. And if the flow gets too complicated, it gets referred to an underwriter to read, and to request notes as appropriate.

Daniel Freeman: AI is here, though. Now, we've obviously had a number of major data breaches — not from insurers, I just want to be very clear, not from insurers. There was a big breach of one of the health-records platforms —

Rory: Oh yeah, that was a big one. And they were held hostage.

Daniel Freeman: There have been a number of breaches, and insurers treat health information very securely. To the best of my knowledge, no life or health insurer has ever been breached in New Zealand in terms of client information — but we all work very carefully. However, AI will come. I don't want to say exactly how and why — partly to protect my current employer, and partly just commercial sensitivity. But the way I see it: if we look five years into the future, and if we could get to a point where people were willing to allow AI to access their medical information — in a consented process, not something we'd just go and do for everyone — then we could ask you questions related to the things that were actually in your medical records, so you don't miss stuff. Unintentional non-disclosure is a thing. At the moment it's still the client saying, "Yes, I had knee surgery," and then answering some questions about knee surgery. My dream is a world where, if a client is willing to release their medical information, the AI doesn't just skim it — it reads it, and then provides more bespoke question sets to applicants. Now, is this coming in the next six months? No — unless one of our competitors has already done it without my knowledge. But do I think this is where the industry should go? Yes, because it's about making the process a little bit easier. The process is daunting — and that's why engaging a financial adviser to help you through it is so good. But if we can make that process even easier for people, and just say, "Hey, this is the stuff we know about in your medical records — can you answer this?", that speeds up the whole application.

Daniel Freeman: Most people don't buy life and health insurance before they've bought some form of general insurance, right? Most people buy a car at 16 or 17, and their parents say, "You need your third-party fire and theft, just in case you hit the Lamborghini on the way out." So they've engaged with general insurance, where you can go online or buy it over the phone, and your policy's issued before you've left the lot. Because of the way life and health insurance works — someone is looking at your actual medical history to come to a decision on a policy that can't be cancelled — the process is much longer. On average, across the life insurance industry, it takes about 15 days from submission to a policy being issued. It varies from company to company, and there are people out there who applied for insurance six months ago and still haven't been issued, for various reasons. So what can we do to reduce that? And for the adviser group who may be listening: people forget the need — why they were going to take out cover in the first place. If we can reduce the amount of time it takes to get people covered, they're going to remember why they actually engaged in the process to get it.

Rory: Have you seen this facial-recognition software that's doing health checks of people?

Daniel Freeman: I have. It's an interesting one, and I don't want to comment on another competitor's product. If nothing else, I find it interesting whether people will be willing to release biometric data at application stage to modify the application process. I don't work at the insurer that provides it, so I can't answer whether the outcomes are better or worse. I watch with interest to see how the New Zealand public engages with it.

Daniel: It's a little bit FBI-esque.

Daniel Freeman: If it leads to better outcomes for clients — if they're able to offer better terms than some of their competitors as a result of that biometric scanning — then that's great for the people who engage with it.

Rory: The impact technology is having on the insurance industry is so good. When I started, it was just at the end of paper applications, and everything went online — and then Zoom calls, COVID. It's changing for the better, aye. And on the advice side, there's obviously lots of technology out there now too.

Daniel Freeman: Absolutely. COVID was an interesting one. I had advisers who had been in the industry for 20 years tell me they didn't want to learn how to have remote conversations with people who were ready to have conversations about their risk. So they sat there for the first 13 weeks of the first lockdown and did nothing — and then got back to work when we were released back outside, and had no one to see. Whereas others pivoted, knowing that nothing focuses your attention on your mortality and your risks like a global pandemic. I know I got a little car insurance refund during COVID, because there was no one driving their cars — but major events actually tend to increase the number of people who start looking for life and health insurance. Because it can happen to anyone.

Daniel: It's the missing puzzle piece when you're thinking about building a legacy and retiring, right? It answers the "what if".

Daniel Freeman: The way I personally see it — and I've always said this to my wife — is that if I pass away before her and I see a Givealittle page on her behalf, I'm going to come down and haunt her. I'm fortunate enough — because it's not cheap — to be able to buy the amount of insurance I think she would need if I were to pass away or have a major health event. But I've told her: no Givealittle pages for you.

Daniel: And no mushroom beef Wellingtons either.

Rory: Not everyone might get that reference.

Daniel: Niche crime reference.

Rory: Mate, I think we've heard so much from you — it's been bloody interesting, and I could keep going.

Daniel: Thank you, Dan. It's been so insightful. I think our clients will be feeling a bit like me — just at ease. And those things you were saying about AI — I can't wait to submit my records to my insurer just to make sure I'm squeaky clean.

Rory: We really appreciate you coming in, and your insights are invaluable. Now, I know you're a big supporter of the Wahs, so one quick-fire question to finish. Number one: is it our year?

Daniel Freeman: It is absolutely our year.

Rory: There you go.

Daniel Freeman: You'll find me in the lower east stand, by the way.

Daniel: That's why I recognised you.

Rory: Nice, mate. Cheers for coming on.

Daniel Freeman: Thanks for having me.