In 2023, insurance authorities in the United States, Canada, and the United Kingdom confronted a staggering reality: a collective $140 billion in insurance claims were denied. This massive figure serves as a stark reminder of the intricate and often-bewildering world of insurance coverage.
The $140 billion in claims denied in a single year serves as a stark reminder for policyholders to understand their insurance coverage, as rejections not only have immediate financial consequences but also highlight the need for thorough understanding.
When we explore the reasons an insurance claim can be denied and why insurance companies deny claims with staggering statistics, our objective is to empower policymakers with knowledge and insights. In the era of insurance, which should offer protection, peace of mind, and financial security, our mission is to ensure that insurance fulfils its basic promise and provides support and stability even in times of adversity.
Pre-Existing Condition
A pre-existing condition is a medical condition that you already have before you buy an insurance policy.
You have a pre-existing condition that you did not disclose to your insurer. Some insurance policies exclude coverage for any medical condition that you had before you bought the policy.
Estimated Over 40% of health insurance claim denied in the US each year, followed by 25% in the UK and 30% in Canada
For example, if you have diabetes and you need insulin, your insurance company will not cover the cost of insulin.
If you file a claim for such a condition, your insurer may deny it and accuse you of fraud or could file a law suit against you or claim for damages or you could get black-listed from other companies too.
Some insurance policies require you to disclose any pre-existing conditions that you have when you apply for the policy. This means that you have to tell the truth about your medical history and any health problems that you have. If you do not disclose your pre-existing conditions, your insurance company may find out later and deny your claim
For example, if you have cancer and you do not tell your insurance company, and then you file a claim for chemotherapy, your insurance company may deny your claim and accuse you of fraud. Fraud is a serious crime that can result in legal action or the cancellation of your policy. In some cases, companies blacklist people, which makes Policy harder to get and makes Premium cost more
A Clue Report
Source: Freepik
A clue report is a database that records all the claims you have made in the past seven years. For your home, auto, or personal property insurance. It shows the date, type, amount, and status of each claim
Insurance companies use this report to check your claim history and determine your risk level and premium rates. If you have a high number of claims, your insurer may consider you a high-risk customer and deny your current claim or cancel your policy.
For example, if you have filed three claims for water damage in your home in the last five years, your insurer may think that you have not maintained your plumbing properly or that you live in a flood-prone area. They may refuse to pay for your fourth claim or increase your deductible or premium
Similarly, if you have been involved in several car accidents or have received multiple tickets for speeding or driving under the influence, your insurer may deny your claim for a new accident or drop your coverage altogether.
Therefore, it is important to be careful and honest when filing claims and to review your clue report regularly to make sure it is accurate and up-to-date.
You can request a free copy of your clue report once a year from LexisNexis Risk Solutions, which is the company that maintains the database. You can also dispute any errors or inaccuracies in your report by contacting LexisNexis or your insurer.
Social Media Profile
Source: Freepik
Insurance companies can use our social media platforms to reject our insurance claims by checking if our posts contradict or undermine our claims.
One of the worst things an accident victim can do is admit fault during a personal injury claim On social media, avoid talking about your accident at all. Even a casual statement could be taken out of context.
For example, if you say you are “glad” no one was seriously hurt in the crash, it could be used to imply that you were partly responsible. Perhaps you admit that you were distracted by your phone or that you are not very familiar with the traffic rules. An insurance company could try to use these details to reduce your claim.
Some apps or websites that you use to “share” your experiences can reveal your activities or locations to the public. Suppose that you injured your back in a trip-and-fall accident. If you then post a selfie of yourself at a concert or “share” your visit to Disneyland, it could look like you were not very hurt.
To be safe, your best option is to temporarily deactivate your account. Facebook, Instagram, and Twitter all allow users to deactivate accounts. Once deactivated, an insurance company cannot search for you.
Coverage Gap
Source: Freepik
A coverage gap due to switching insurers is a situation where you have a period of time when you are not covered by any insurance policy.
This can happen if you cancel your old policy before your new policy starts or if there is a delay in processing your new policy application.
For example, suppose you have a car insurance policy that expires on June 30th, and you apply for a new policy with a different insurer that starts on July 1st. However, due to some administrative issues, your new policy was not activated until July 5th. This means that you have a coverage gap of five days, from July 1st to July 5th, when you are not insured by either policy.
Estimated Over 15% of health insurance claims are rejected in the US each year, followed by 30% in the UK and 25% in Canada
If you file a claim during this coverage gap, neither insurer may cover it, and you may be left uninsured. For example, suppose you get into a car accident on July 3rd and cause damage to another vehicle. You may have to pay for the repair costs out of your own pocket.
To avoid coverage gaps due to switching insurers, you should make sure that your new policy is effective before your old policy expires. You can also ask your old insurer to extend your coverage until your new policy is confirmed.
Alternatively, you can purchase a short-term or temporary insurance policy to cover the gap period. These are some of the ways to close the coverage gap and protect yourself from potential risks.
Unreported Vehicle Modification
Source: Freepik
An unauthorized modification on your car is a change that you make to your car without informing your insurer or getting their approval. Some insurance policies require you to inform your insurer of any modifications you make to your car.
Such as adding spoilers, tinted windows, turbochargers, It could be anything which an Insurance company could use against you to not pass your claim
Suppose you add a spoiler to your car to improve its aerodynamics and speed. However, you do not inform your insurer about this modification. One day, you get into a high-speed collision with another car and cause severe damage to both vehicles
You file a claim with your insurer, hoping to get reimbursed for the repair costs. However, your insurer discovers that you have an unauthorized modification on your car and rejects your claim. They also cancel your policy and blacklist you from their services.
If you file a claim for a car with unauthorized modifications, your insurer may deny it and void your policy. This means that you will not receive any compensation for the damage or loss of your car, and you will also lose your insurance protection for the future
Unreasonable Delay
Source: Freepik
When it comes to insurance claims, reporting and repairing them in a timely manner is crucial. Many insurance policies have a provision that requires you to report your claim as soon as possible and take reasonable steps to prevent further damage.
Failing to meet these requirements can result in your insurer denying your claim and accusing you of negligence.
Reporting the claim promptly is important because it allows your insurer to gather all necessary information while the details are fresh in your memory.
It also allows them to conduct a timely investigation and assess the damage accurately. If you delay in reporting, it can create doubts about the validity of your claim.
Here’s an example to illustrate the situation:
Let’s say you have a homeowner’s insurance policy, and your house sustains water damage due to a leaking pipe. If you wait several weeks before reporting the claim, the insurance company may argue that the delay caused additional damage.
They might question why you did not take prompt action to mitigate the damage or prevent it from getting worse. The insurer might argue that you failed to meet your obligation as a policyholder.
Repairing the damage promptly is also crucial to preventing further loss. Insurance policies often require policyholders to mitigate the damage and take reasonable steps to prevent any further loss.
If you delay in taking action to repair or prevent additional damage, the insurer might argue that you failed to meet your obligation as a policyholder.
To prevent any issues, it’s essential to thoroughly review your insurance policy and understand the reporting and mitigation requirements.
If you have a claim, it’s best to notify your insurer as soon as possible and take immediate action to prevent further damage.
If you encounter any delays or complications, it’s advisable to communicate with your insurer and document your efforts to comply with the policy requirements.
Conflict of interest
Source: Freepik
A conflict of interest can arise when your insurance company has a financial stake in the outcome of your claim.
This can occur if the insurance company has ownership shares in the company responsible for the damage or if they are affiliated with the party that caused the injury.
In such cases, the insurer may have a motive to deny your claim or settle it for a lower amount, accusing you of bad faith in the process.
Having a financial stake in the outcome of a claim can create a conflict of interest for the insurer because their bottom line could be affected by the amount they have to pay out for your claim.
This conflict can lead the insurance company to act in their own best interests rather than in yours as the policyholder. They may use various tactics to deny, delay, or undervalue your claim.
Here’s an example to illustrate this situation:
Let’s say you have a car insurance policy, and you get into an accident with a driver who is insured by the same company. If your insurance company is financially linked to the at-fault driver’s insurance company, they may have a conflict of interest. In this case, they may try to deny or undervalue your claim to protect their financial interests and minimize their payout.
Another example could be if you have homeowner’s insurance and your property gets damaged due to a construction defect. If your insurance company has a financial stake in the construction company responsible for the defect, they may be inclined to deny or underpay your claim to safeguard their interests.
Estimated Over 25% of home insurance claims are denied in the US each year, followed by 25% in the UK and 30% in Canada
If you suspect a conflict or unfair treatment, keep detailed records of all interactions with your insurer, including correspondence and phone calls.
Arbitration Clause
Source: Freepik
Some insurance policies include an arbitration clause, which mandates that any disputes between the policyholder and the insurer must be resolved through arbitration rather than the traditional court system.
Arbitration is a private and binding process where an impartial third party, called an arbitrator, reviews the evidence and makes a decision.
If you file a lawsuit against your insurer without first going through arbitration, your insurer may use this as grounds to deny your claim and seek to dismiss your case. This is because you agreed to resolve disputes through arbitration when you accepted and signed the insurance policy.
For example, let’s say you have a health insurance policy that contains an arbitration clause. You have a disagreement with your insurer regarding the coverage of a medical procedure and decide to file a lawsuit in court to settle the matter.
In response, your insurer may argue that you failed to abide by the terms of the policy by not pursuing arbitration first. They can then move to have your lawsuit dismissed.
It’s important to carefully review your insurance policy to understand if it includes an arbitration clause. If it does, and you have a dispute with your insurer, it’s crucial to follow the proper procedures outlined in the policy. Typically, this would involve initiating arbitration proceedings before considering litigation.
Subrogation Issue
When you have multiple insurance plans that might cover the same loss or claim, your insurer may apply the subrogation principle.
Subrogation enables your insurer to pursue compensation from additional insurers who might have policies that cover the same loss as yours. Instead of paying your claim directly, your insurer may deny it and refer you to another insurer to handle the reimbursement.
Let’s imagine, for illustration, that you are hurt in a vehicle accident. You are covered by both health and vehicle insurance. Your health insurer may reject your medical claim and ask you to submit it to your vehicle insurance company if your health insurance contract contains a subrogation clause.
This is because they have the right to seek reimbursement from your auto insurer for the medical payments made on your behalf.
In such cases, it is common for the insurance companies to communicate and negotiate the subrogation process.
Your role may involve providing documentation and information to support the transfer of the claim from one insurer to another.
Once the subrogation process is complete, the insurer, who ultimately bears responsibility for the claim, will cover the expenses.
Diminished Value Claim
Source: Freepik
Diminished value refers to the decrease in the market value of a vehicle after it has been involved in an accident, even if it has been fully repaired.
However, some insurance policies may not cover this loss in value, leaving the policyholder responsible for the diminished value of their vehicle.
For example, let’s say you own a car that was involved in a severe collision. Despite being repaired to its pre-accident condition, the fact that it has a history of being in an accident may cause potential buyers to perceive it as less valuable.
If your insurance policy does not cover diminished value, you would bear the financial burden of the difference in market value between your car before and after the accident.
Conclusion
In conclusion, being aware of potential reasons for insurance claim rejection means that insurance companies could do anything to underpay you for your claim, and it is vital for policyholders to secure the coverage they need.
Honesty about pre-existing conditions, cautious use of social media, and bridging coverage gaps during insurer transitions are key strategies to prevent claim denials. Timely reporting and repairs, along with vigilance in cases of conflicts of interest or arbitration clauses, are essential for successful claims.
Moreover, understanding subrogation processes and ensuring your policy covers diminished value claims can further safeguard your financial interests. By staying informed and proactive, policyholders can optimize their insurance benefits and minimize the risk of claim rejection, ultimately providing peace of mind during uncertain times.
Below is the data on the type of insurance claim denial from each country
| Country | Home Insurance | Life Insurance | Vehicle Insurance | Other Insurance |
|---|---|---|---|---|
| United States | 40% | 10% | 15% | 10% |
| United Kingdom | 25% | 10% | 30% | 10% |
| Canada | 30% | 10% | 25% | 10% |
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