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01 September 2021

What do you know about insurance exclusions?

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Insurance is a complicated product.

From its core concept of being an equitable exchange of risk from one party to another, in return for a predetermined fee, through to more technical mechanisms like Proximate Cause, Subrogation, and even the formation of a contract, there are many aspects to insurance coverage of which the average policyholder may not be aware.

One of these considerations is the issue of exclusions on your policy.

Equity in Managing Risk

The primary role of insurance is to move risk from one party, to another, equitably.

There are many policy mechanisms that allow for the management of the fair exchange of risk on both sides of the insurance contract. The main tool used by insurance companies to ensure equality of the coverage is the placement of exclusions on the risk being covered.

An exclusion, very simply put, is a risk, act, fact, or error which the insurer (and consequently the policy) will not cover. Exclusions are placed on insurance coverage for a number of reasons. In many cases they are used to narrow, or define, the scope of the policy. This ensures that only the risk that is intended for coverage under the insurance contract is being protected against, and that the insurer is not going to be paying claims which fall outside the scope of the policy.

Exclusions occur on every single type of insurance, whether a Benefit or Indemnity policy. This is simply due to the fact that there are always risks which the insurer will be unwilling (or unable) to cover. Such risks commonly include:

  • War
  • Terrorism
  • Government Actions

Such acts would normally be referred to as “catastrophic” and would normally be excluded from most insurance coverage, unless the coverage is purchased to specifically protect against these risks.

Different types of policy will contain different types of exclusion. For example, a Professional Indemnity policy which contains coverage against Errors and Omissions made by a company, would exclude any intentional actions that lead to a claim.

Although Exclusions exist on every single type of Hong Kong Insurance policy, the plan on which most people will encounter and learn about insurance exclusions is their Health Insurance Coverage.

Exclusions on Health Insurance

Health Insurance is a common insurance product that is owned by many people.

However, this type of coverage contains some of the most routinely encountered insurance exclusions. These mainly pertain to the existence of pre-existing medical conditions and how these conditions apply to the definition of insurance.

For clarification, pre-existing medical conditions are defined as any medical condition of which the policyholder was aware, displayed symptoms, received treatment, or a diagnosis, prior to the commencement of the insurance.

Unless otherwise indicated, health insurance providers will exclude pre-existing medical conditions, and their related conditions, under the policy.

This means that if a condition was in existence before the start of your health insurance policy, then the insurance plan will not cover the costs of treatment associated with that condition. Further to this, any future medical conditions which may be related to the initial pre-existing condition will also be excluded.

Exclusions and Proximate Cause

In the case of a health insurance plan, because illnesses and symptoms caused by the pre-existing medical condition are excluded from coverage it then becomes extremely important to understand if a treatment is related to the excluded condition, or a new illness.

This is true for all exclusions – before a claim can be paid under the policy, the insurer needs to determine whether the cause of the loss is from a covered risk, rather than one which was excluded from the policy. Remember, insurance demands equity and in an attempt to ensure this limits the scope of protection through comprehensive contracts of coverage.

If a loss is caused by an excluded risk, then the loss will not be covered by the insurance company. If an insured risk, causes an excluded risk, which then leads to a loss, because the insured risk was the proximate cause the loss will be covered.

For more information, please click this link for How Proximate Cause Works.

Exclusions and Utmost Good Faith

Pre-existing conditions on health insurance are a great example of another touchpoint for the concept of exclusions; utmost good faith.

Some individuals with pre-existing conditions attempt to hide these from the insurance company, and do not disclose their full medical histories on their health insurance applications. Unfortunately, this is a breach of utmost good faith, and consequently a breach of contract – the policyholder, when discovered, would likely forfeit all premiums paid to the insurer and find themselves as the defendants in a legal action as this would be considered fraudulent non-disclosure.

A pre-existing medical condition is a material fact, a fact which will have an impact on the equality inherent in the contract of insurance. The preservation equity in exchanging risk is the primary concern of insurance, and exclusions are one of the ways that this is achieved.

Insurance in Hong Kong

Exclusions are commonly encountered on all types of insurance, and are one of the many concepts necessary for the normal operation of insurance products. However, as we’ve seen with a host of other technical insurance principles, exclusions impact many other insurance mechanisms and will, based on the application of those ideas, influence your coverage.

It is not expected that you will be familiar with all the technical areas of your insurance policy, you just need to know that your coverage will protect you when you need it! When you do have questions, the expert Hong Kong Insurance Brokers at CCW Global are able to provide you the best advice available on a no-cost, no-obligation basis.

If you would like to learn more about exclusions and how they apply to insurance in Hong Kong, please Contact Us Today.

About Author

Michael Lamb is an insurance industry professional with many years of experience within the Hong Kong Insurance market. Focusing on APAC coverage issues, Michael is able to provide extensive analysis and insight to a range of pressing topics. Previously, Michael provided insurance broker Globalsurance.com with their most highly valued articles and was a key influence in the development of all the content on Pacificprime.com, Michael has a passion for insurance matched by few others in the region.

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