Are insurance policy exclusions for mental health unfair?

Mental health advocates and health providers encourage us to ask for help, to see a GP or a counsellor, but for the insurer this can be a red flag.

Getting help may make you a ‘high risk’ for insurers, who may then exclude cover for a mental health condition. This means that, should the condition recur, the financial help you need to support you and your family while you recover is denied.

Although exclusions and stand-down periods are a standard – and legal – insurance practice, we take issue with their application to mental health conditions. Especially if insurers are basing their decisions on a patient’s medical notes without getting clarity on diagnosis or looking into an individual’s circumstances.

We believe mental health exclusions point to systemic failure in the insurance market, which can amount to discrimination on the grounds of mental health.

Including mental health exclusions in insurance policies is a practice that hasn’t kept up with changing medical and socio-cultural attitudes to mental wellness. It can also further marginalise people in the community and stop them asking for help.

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We investigate how and why a doctor's visit for a mild fear of flying resulted in a blanket "mental health exclusion" when Consume This host Sophie applied for income protection insurance.

When asking for help backfires

Beth* is a medical professional who has worked at a North Island district health board since the early 2000s.

After she had separated from her husband, Beth took out an income security policy with MAS in 2017.

Yet a mental health exclusion was added to her policy.

The exclusion “surprised me, because I’ve never had a diagnosis of any mental illness,” Beth said.

Beth had counselling sessions to discuss an episode of workplace bullying.

Later the following year, her GP recommended she see a counsellor to talk through the issues around separating from her husband, such as managing their children.

“I thought that was entirely what you should do,” Beth said.

She also saw a marriage counsellor.

MAS put a stand-down period of two years in place, meaning Beth wouldn’t have any cover for events related to her mental health for two years. MAS agreed to review the cover in 2019.

In the first review, MAS said it would keep the exclusion in place because of concerns about Beth’s work. The insurer acknowledged Beth didn’t have a mental health diagnosis but was concerned that she had taken time off work and that her GP noted depressive symptoms on her file.

Beth had taken six weeks off work.

“I had just been ridiculously busy in my job,” she said.

Another review was possible two years later. However, she was told by her insurer that they would “need to confirm that you have maintained wellness without any recurrence of symptoms for at least two years”.

Beth complained to the Insurance & Financial Services Ombudsman (IFSO) in July 2020 about the mental health exclusion. IFSO referred the complaint back to MAS’s internal complaints process, saying an outcome should take no more than two months.

But it took nearly nine months for Beth to hear back from MAS.

When we contacted MAS for comment they apologised for the delay in resolving Beth’s complaint.

A spokesperson said during this time it negotiated a special exclusion with its reinsurer with the aim of getting the best possible terms for Beth.

Yet the changed terms, in our opinion, are still very broad.

No claim would be paid out arising from “any anxiety state, stress, chronic fatigue syndrome, depression or any mental or functional nervous disorder or complications thereof”.

A MAS spokesperson said mental health claims are the highest claims cost under income policies. To mitigate these costs, insurers had three options:

1. Increase premiums for those with a history of mental illness.
2. Spread the cost across all customers; or
3. Exclude cover for those with a history of mental illness.

The MAS spokesperson said exclusions are the decision of its reinsurer, but MAS can negotiate the removal of the exclusion in some circumstances, “such as when a customer demonstrates that their mental health issues have been well managed for a period of time.”

What annoyed Beth is that while she was waiting to hear back about her complaint, MAS was offering its policyholders a counselling service.

“There was nothing [in their emails] about the impact it has on your insurance if you actually use it,” Beth said.

MAS said they appreciated that the offer of counselling could seem disingenuous, yet the intention was to offer early intervention for better mental health outcomes. “This would lead to better insurance outcomes as these factors also positively affect the underwriting assessment,” the insurer said.

The insurer added that it doesn’t have access to any information about customers who use the counselling service.

Yet, if a customer told their GP they had accessed the counselling, that information would be available to the insurer.

It’s also important to note that insurers are likely to request access to a patient’s full medical history before they offer cover. Sometimes, even in the absence of a mental health diagnosis, notes on your patient file can indicate risk to an insurer and affect your cover (see “Nuance in mental health diagnosis”).

We note that MAS took a different view of Beth’s medical history and due to privacy obligations could not provide detailed comment.

Six years after the exclusion, in February 2022, when Beth showed her mental health was well managed for two years, MAS’s reinsurer agreed to drop the exclusion from her policy.

*Beth and Ted are both pseudonyms.

Too many questions

Ted* applied for mortgage protection insurance through a broker in October last year but stopped the application because of the invasive application questions.

He disclosed to the broker that he had had some anxiety around the first Covid lockdown. His relationship had ended, and he lost work contracts.

The disclosure resulted in a raft of questions from the broker. All up, Ted spent about six hours on Zoom calls and paperwork before withdrawing the application.

“It was just a lot of really invasive questions, and ludicrous questions. I mean, you know—'have you ever experienced stress?’ ”, Ted said.

He believed the number of questions was a deterrent to disclosing a mental health condition.

“The insurance companies are actually aiding poor mental health of New Zealanders because they’re encouraging people to not talk about mental health out of fear that they’ll have to pay more money for insurance,” he said.

“I had some very mild mental health [issues] … I’ve never had time off work, I’ve never had days off work, you know, I just had a bit of tricky anxiety … It’s nothing out of the ordinary, but apparently, it means I’m unstable and will have to be considered a dangerous policyholder,” Ted said.

Ted’s not alone in his experience of anxiety during the pandemic. The World Health Organization (WHO) said in the first year of Covid the prevalence of anxiety and depression increased 25% globally.

Young people and women have been the hardest hit.

The insurance mystery shop

We mystery shopped 14 insurance providers offering health, life, and income protection insurance policies.

We wanted to see if shoppers could get cover for a declared pre-existing mental health condition, or whether an exclusion or stand-down period would apply.

The shoppers called the insurance provider once for each policy, for each scenario below:

Shopper one: Abbey is a 45 year old solo-parent living in Auckland. She had a marriage break-up in the past 18 months and went to counselling sessions (once a week for six weeks). She was referred to the counsellor by their GP. She does not have a mental health diagnosis. Abbey is a fulltime administrator.

Shopper two: Bella is 38 years old, married, and has two kids and lives in Wellington. She lost her job in retail during the first Covid lockdown (2020) and developed anxiety during that period.

She had no prior experience of anxiety. Bella’s GP has diagnosed her with the condition and prescribed medication. She is no longer on medication for the condition. She is now employed as a team leader.

Shopper three: Cate is 30 years old and lives in Christchurch. She’s engaged to be married. Cate was diagnosed with depression as a teenager (15 years) and takes medication to manage the condition. She was also referred to a counsellor as a teenager for a period of a year – give or take – because of suicidal ideation and instances of self-harm.

Cate is now well. Depression doesn’t get in the way of her day-to-day life.

She’s an accounts manager.

What we found

Health insurance

“Sadly, New Zealand is a little bit behind the times when talking about mental health and medical insurance,” an independent financial adviser said to Abbey from Auckland.

When Abbey rang Partners Life she was referred to the independent financial adviser, who went on to say, “medical insurance in New Zealand is primarily focused on physical health, not mental health, sadly”.

While the financial adviser had confidence insurers are “going to get with the times”, mental health conditions are excluded from Partners Life Private Medical Cover policy.

This insurer is not alone; there are also blanket exclusions for mental illness in all the health insurance policies we looked at.

Yet there are some nominal benefits for counselling and hospital psychiatric care.

UniMed Hospital Select offers $720 a year to see a psychologist and $360 to see a counsellor. With Nib’s Premium Everyday and Accuro’s SmartCare+ specialist plan, it’s $500 for psychiatrist and psychologist cover.

Southern Cross’s Wellbeing One, Two and UltraCare policies are slightly more generous, offering $750 a year. It’s UltraCare policy also offers up to $600 per year to see a clinical psychologist.

Psychiatric hospitalisation is also offered with Southern Cross up to $3500 a year. It’s $5000 with UniMed.

UniMed and Accuro have recently put in place psychologist, psychiatrist, or mental health nurse support on top of existing policy benefits. Southern Cross have as well, up until the 30 June 2022.

Yet UniMed told Bella, who experienced anxiety during the first Covid lockdown, that its Hospital Select policy didn’t have any mental health benefits.

A spokesperson for UniMed said mental health benefits have recently been added and the initial advice Bella received was incorrect.

While all shoppers were offered insurance, most would need to complete more paperwork for the underwriter to decide whether any exclusion or stand-down period would apply to their policy. While this is a limitation of the mystery shop, it is a fruitful area for future research.

Bella was told she could face a maximum five-year stand-down period with Accuro because of her mental health history.

She was told the stand-down for Southern Cross’s UltraCare policy was three years.

A Southern Cross spokesperson clarified that members can have their ‘qualifying’ pre-existing conditions covered after three years of continuous cover, which includes mental health.

Income protection insurance

Income protection insurance helps you pay the bills if you’re unable to work due to an injury or illness.

AIA referred Bella to an independent financial adviser who said it was likely a mental health exclusion would be applied to the policy. Bella had developed anxiety during the first lockdown.

“Of course, you have to understand that all insurance companies are a business, and they know the impact of Covid, so it’s not possible for them to actually issue a policy without a mental health exclusion, especially when you’ve gone to the GP and expressed you’re anxious, you’ve got treatment or counselling or medication, whatever it may be,” the financial adviser said.

Mental health cover could be reassessed once Bella had the policy for five years and they hadn’t sought any further treatment for the condition.

A spokesperson for AIA said the advice the financial adviser gave was incorrect. To make a cover decision a full application would need to be assessed. Any stand-down would be based on the individual’s circumstances, “but typically would be up to 12 months.”

At Fidelity Life, Bella was referred to an independent financial adviser for the initial phone query.

While the adviser didn’t envisage Bella’s mental health history to be an issue, it was explained that all cover needs to be assessed by the underwriters.

“There are questions around mental health and any stress or anxiety-related conditions” during the underwriting process, and they “might seek some notes from your GP,” the adviser said.

However, given Bella was in good health now and wasn’t on any medication, the adviser referred to the condition as “a blip”.

The independent financial adviser who discussed the Partners Life policy with Bella said, a stand-down period would be likely, provided “there was no drama for a year or so”.

Aligning a mental health condition with ‘drama’ in our books is discriminatory language.

When we showed Partners Life the comment, a spokesperson said the independent financial adviser’s opinion is not the opinion of Partner’s Life.

Cate, from Christchurch, who had been diagnosed with depression as a teenager, couldn’t get a clear answer as to whether her mental health condition would be covered without going through a full underwriting assessment.

At MAS, Cate was told it would be a likely policy exclusion.

The outcome was clearer for Abbey, who had six counselling sessions. MAS and the independent adviser selling the Partners Life policy said she would be covered because there hadn’t been a diagnosis.

The Pinnacle Life policy had a blanket exclusion for mental health.

Life insurance

Life insurance is meant to cover any outstanding expenses, like the mortgage, when we die. All life insurance policies have exclusions or stand-down periods for suicide.

When Cate, who had been diagnosed with depression as a teenager, mentioned her mental health condition at Cigna, her premium went up from $11.80 to $16.55 a fortnight.

“There has been a loading of 50% just due to the mental illness moderate [condition] … so not a huge jump, just a slight increase there,” the Cigna adviser said.

When the mental health history was declared, a range of questions were asked, from clarifying their diagnosis – “was that, it sounds awful to say, just regular depression?” – through to questions about self-harm and overdoses.

The independent financial adviser selling the AIA policy advised Cate, “they may have an exclusion for mental health … if well managed, they’re normally fine to let it slide through”.

Yet an AIA spokesperson said it doesn’t apply mental health exclusions for life cover. Instead, where there’s a “perceived additional risk” it would apply a policy loading, meaning a more expensive premium.

MAS and Asteron said it shouldn’t be a problem but would depend on the underwriter’s assessment. While Westpac couldn’t tell Cate either way and said it would depend on the underwriter.

OneChoice would cover Cate.

Bella, who had anxiety during the first lockdown, was referred to the underwriter at Cigna, MAS, and Pinnacle Life.

AIA and OneChoice would cover Bella’s pre-existing mental health condition.

Abbey was referred to underwriters by the insurers.

The Human Rights Act exception for insurers

While the Human Rights Act means people can’t be discriminated against on the grounds of gender, disability, age, or any physical or psychiatric illness – among other things – there’s an exception for insurers.

The exception exists so insurers can ensure they aren’t taking on too much risk.

When you apply for insurance, the company will set a premium based on the likelihood of you making a claim from the information you provide about health, gender, and age.

Insurers need to balance the number of customers it considers high and low risk. If the insurer has too many people claiming on the policy, this could make premiums too expensive.

Rather than decline an insurance application outright, insurers have three options to mitigate their risk. They can charge a more expensive premium, exclude conditions from cover, or impose stand-down periods.

A stand-down is when a customer can’t claim for a specific condition for a period of time.

If the insurer excludes a condition from cover, it should, according to guidelines from the Human Rights Commission, have made an effort to base its decision on the individual’s circumstances. The insurer should also take into account any treatment plan and who is treating the applicant.

Insurers also need to use robust data to back up their decisions to exclude conditions from cover. However, under the Human Rights Act, if data isn’t available, insurers can base their decisions on medical or actuarial advice or opinion. We think this is problematic as it creates space for underwriter’s bias or potential discriminatory attitudes to determine cover decisions.

How do insurers decide who is ‘high risk’?

We asked 14 insurers how they assess customers for risk.

Life, health, and income protection insurer AIA encourages customers to “tell their own story”.

“We do make a significant effort to try to understand each client’s individual circumstances,” a spokesperson said.

Responses are then reviewed alongside actuarial and medical data. The insurer also has access to international data as well as an in-house Chief Medical Officer.

“A high percentage of customers with a history of mental health issues are accepted without limitation [stand down or exclusion], particularly for life and trauma,” an AIA spokesperson said.

Asteron, AA, Fidelity Life, and Westpac had similar processes.

Health insurer Southern Cross bases its decision on medical diagnosis or “signs, symptoms or events of that condition in the case where no diagnosis has been reached”.

Nib’s Premium Everyday and Standard Everyday policies are not underwritten, meaning they don’t assess risk when customers apply.

It generally doesn’t request information from health providers, either. However, when you claim, it will check the policy covers you for the condition.

At Accuro, pre-existing conditions are assessed based on the customer’s medical records.

Pinnacle Life, MAS, and Partners Life declined to take part in our survey of insurers, which asked a range of questions, from policy cover to underwriting decisions. We didn’t get a response from Cigna or OneChoice.

Stand-down periods and exclusions

We also asked insurers whether they applied stand-down periods or exclusions for mental health conditions.

Accuro, Fidelity Life, and Westpac said a declaration of a mental health condition could involve a stand-down period or exclusion.

Health insurers Southern Cross and UniMed said any declared condition is likely to be listed as a pre-existing condition and therefore not covered.

However, all the health insurance policies we looked at have broad exclusions for mental health, meaning there is limited cover for mental health conditions in the policies.

The income protection policy with Pinnacle Life had a blanket exclusion for mental illness to ensure premiums were affordable, it said.

While AIA and Asteron income protection policies offer an optional benefit where you can limit mental health cover to two years for a cheaper premium.

In general, life insurance policies have a stand-down period for self-harm or suicide.

How exclusions discriminate

Beyond Blue, an Australian mental health advocacy group, found mental health exclusions can sometimes be applied because a person reports a symptom of mental illness, regardless of whether they have been diagnosed with a condition.

It also found some insurers determined a person had a mental health condition if they had been to see a counsellor or psychologist, “even if this contact was unrelated to a mental health condition”, such as relationship counselling.

In some cases, exclusions were applied “even if the psychologist/counsellor did not think the person had a mental health condition”.

Respondents to Beyond Blue’s 2011 survey of consumer experiences of discrimination in the insurance market, felt insurance companies automatically categorised mental health conditions as high risk, regardless of individual circumstances.

Beyond Blue says stand-down periods can stop people getting help if their condition reoccurs. It can also increase the stigma associated with mental illness.

Such treatment has a ripple effect in the community, too.

Beyond Blue said when people with a mental health condition hear about others being discriminated against – whether in insurance or other matters – “they begin to anticipate discrimination and stop themselves doing things”.

The Health Promotion Agency’s (HPA) 2020 report Mental Distress and Discrimination in Aotearoa New Zealand said of the fifth of respondents who experienced mental distress, 16% reported they had experienced discrimination in the insurance market.

Hearing about discrimination means people don’t apply or may not complete the application because the health assessments are too stressful, or they withdraw from the process because they expect their application to be declined.

Nuance in mental health diagnosis

While data can give an evidence-based picture of the risks associated with insuring people, Beyond Blue says there are also “too many opportunities for underwriters to inject their own views or biases into their work”.

The human rights legislation in New Zealand means insurers can rely on their own expertise to make cover decisions if no other data is available.

The advocacy group suggests underwriting focuses too much on the illness rather than considering how an individual is functioning day –to– day.

According to Dr Bryan Betty, the Medical Director at the Royal New Zealand College of General Practitioners, the difficulty for GPs is around clarity of diagnosis and its implications for insurance.

While the term ‘depression’ may be used, it could be referring to an adjustment disorder, which someone will recover from in a few months, or it could refer to someone with major depression with suicidal ideation.

“There has been some debate about this over the past year or so, about clarity about classifications and the implications for insurance … It’s potentially very unfair,” Dr Betty said.

On the other hand diagnosing physical health conditions involves more objective testing tools, such as blood pressure.

If the insurer’s risk assessment doesn’t take into account individual differences or the nuance of the mental health diagnosis, or if it overestimates the severity of a condition while underestimating recovery, this could prevent people getting cover.

Current definitions of mental health reflect a societal change. University of Auckland’s Koi Tū 2020 report Protecting and promoting mental wellbeing: beyond Covid-19 notes the shift away from ‘mental illness’ to ‘mental wellbeing’.

The report also notes that recent research has shown mental and emotional distress exists on a continuum. The specificity of diagnosis has also come into question, and it’s acknowledged most people will experience mental distress at some point in their life.

We asked the Financial Services Council, an insurance and financial services membership organisation, whether underwriting terms have kept up with societal and medical changes.

A spokesperson said underwriting standards are constantly evolving to keep up with societal and medical attitudes to mental health.

In response to more people seeking mental health treatment, “insurers have adapted their underwriting approaches to reflect these changes and to discern between mental ill health or distress at varying degrees of severity, management and recurrence,” the spokesperson said.

Any exclusions applied to a policy can be reviewed if the customer believes they are no longer appropriate, the spokesperson said.

The FSC is investigating the prevalence of mental health disclosures and how the industry is responding.

Proposed changes to insurance contracts

To avoid stand-down periods or exclusions on your insurance policy, you may be tempted not to tell the insurer about a mental illness.

However, if you don’t disclose you’ve had a mental illness in the past – or any other condition – this could be used to void the policy, even if you’re claiming for something completely unrelated.

Under current laws, policyholders must disclose all facts that would influence the insurer’s decision to cover you.

Yet it’s not always clear what consumers should declare to insurers.

During our mystery shop, an independent financial adviser said it was better to talk to someone on the phone about exclusions and pre-existing conditions because online applications weren’t paid out as often.

“You don’t really know what to disclose, it’s a bit of a grey area generally. People who apply online tend to have a lot less claims paid out.”

In many cases, it’s unlikely the consumer will know what information is relevant to the insurer. This can lead to accidental omission and claims being voided.

Thankfully, rules around what you should disclose to insurers are up for review.

The Government launched a review of insurance contract law in February 2018 to ensure insurance is working for consumers. It has also recently released an exposure draft of the Insurance Contracts Bill.

Rather than it being up to the consumer to disclose all relevant information, proposed new laws will mean the policyholder would need to answer the insurer’s questions with “reasonable care not to make a misrepresentation”.

Essentially, the consumer would need to answer the insurer’s questions truthfully and accurately.

It also means the emphasis goes back on the insurer to ask specific questions in the insurance application.

If an accidental omission is discovered at claim time, the insurer can’t just void the claim – unless it’s clearly fraudulent.

If the insurer wouldn’t have offered a policy had it known about the omission, it can void the policy, but has to return all premiums paid.

If the omission would mean you would’ve had to pay a more expensive premium, the insurer would pay out the claim minus the difference in premium price.

Life insurance is treated slightly differently. If there’s an accidental omission, insurance companies will have to pay out on the policy unless the omission occurred within the last three years.

There’s still a few hoops to go through before the proposals become law. The Ministry of Business, Innovation and Employment (MBIE) are calling for submissions on the proposals by 4 May 2022.

What we want to see changed

People with mental health conditions should have fair access to insurance so they can protect themselves and their families from the financial fallout of a premature death, illness or injury.

We want insurers’ decisions on whether to insure a person to be based on up-to-date research and data, taking individual circumstances into account rather than making broad assumptions and basing decisions solely on medical notes or a few counselling sessions.

We’d like to see a ban on blanket exclusions for mental health conditions as we consider these to be discriminatory.

We’d also like to see medical professionals and insurers working together to communicate the nuances of mental health diagnosis.

And finally, the Government needs to implement proposed changes to insurance laws to ensure consumers are better protected.

Consumer NZ would like to thank our supporters who shared their experiences with insurers. Our interviews with you provided valuable consumer insights into the insurance market.

Consumer NZ is grateful for receiving funding from the Nōku te Ao: Like Minds programme, and support from the Mental Health Foundation in researching this article.