Know Health
Know Cigna !

Health Insurance Learning Hub

Principles of Insurance Contracts: Built on
（Utmost Good Faith）？

When enrolling in health insurance, the goal is to obtain appropriate coverage in the case of illness. However, disputes over denied claims are not uncommon. According to the Insurance Complaints Bureau's 2021 annual report, there were 583 complaints about denied claims in 2020, involving HKD 6.26 million. The two insurance products that generated the most disputes were hospitalization/medical insurance and travel insurance.

Insurance contracts are based on the principle of "utmost good faith," meaning policyholders are responsible for accurately disclosing their health status and medical history to the insurance company. This allows the insurer to assess risk and decide whether to impose additional premiums, specify exclusions, or offer coverage. If a policyholder violates this principle by failing to disclose important facts, the insurer can deny claims. "Non-disclosure" was one of the top three reasons for complaints in 2020, ranking just below "application of policy terms" and ahead of "excluded items."

Common Reasons for Insurance Claim Denials

What grounds do insurance companies have for denying claims? They typically fall into three categories: violations of "utmost good faith," excluded items, or misunderstandings about exclusions.

1.Violation of "Utmost Good Faith" - Non-Disclosure

Under the principle of utmost good faith, policyholders must disclose all relevant facts. A frequent issue in medical insurance claims is the failure to disclose pre-existing conditions—health issues that existed at the time of application but were not reported. Example*: Ms. Chan purchased medical insurance in 2019 and was later diagnosed with left breast inflammation, requiring surgery. During the claims investigation, it was revealed that she had undisclosed gynecological issues between 2012 and 2018 and a history of seizures and migraines. As she failed to disclose this information, the insurance company denied her claim and canceled her policy.

2.Excluded Items - Not Medically Necessary

Policy terms specify criteria for " Medically Necessary." The medical services received must conform to general professional medical standards and be necessary for diagnosis and treatment. Non-emergency procedures should be verified with the insurance company beforehand.

• Treatment corresponding to the diagnosis based on "reasonable and customary" costs.*

• In accordance with good and prudent medical standards.

• As required for the diagnosis or treatment.

• Not solely for the convenience of the "insured," "doctor," "traditional Chinese medicine practitioner," "physiotherapist," "anesthetist," or any other healthcare provider.

• Providing safe and effective treatment for the "insured" to the appropriate degree.

• "Hospitalization" is not solely for diagnostic scans, imaging tests, or physiotherapy.

Example: More procedures are becoming available in outpatient settings, and costs can vary significantly. If a policyholder opts for a procedure that is not deemed necessary based on these criteria, the claim may be denied.

3.Claim Assessment - Reasonable and Customary

If a claim exceeds what is considered " Reasonable and Customary “the insurance company can deny or limit reimbursement. "Reasonable and Customary " rates are determined based on various sources, including insurance and medical fee statistics.

Example*: Ms. Lam underwent a colonoscopy and was charged HKD 48,000. The insurer found that similar procedures typically cost between HKD 12,750 and HKD 19,350 and adjusted her claim accordingly.

4.Excluded Items - Preventive Treatments

Routine check-ups, screenings, or tests performed without symptoms are generally not covered unless explicitly stated in the policy.
Example*: Ms. Lee had to undergo a COVID-19 test for travel, but since it was a symptom-free screening, the insurance company denied the claim.

5.Excluded Items - Congenital Conditions

Traditional insurance typically does not cover congenital conditions such as Down syndrome, leukemia, or heart disease.

Example*: Mr. Zhang purchased insurance for his 11-month-old son. Five days after the policy was issued, the son required surgery for a right inguinal hernia. The insurer denied the claim, stating it fell under congenital conditions.

How to Avoid Insurance Claim Denials

• 1.Accurately Report Medical History
  
  Fulfill the principle of "utmost good faith" by proactively disclosing all important information to the insurance company, enabling the insurer to perform a proper risk assessment rather than only disclosing medical history during the claims process.

• 2.Understand Excluded Items
  
  Familiarize yourself with the definitions of excluded items in the policy. Most policies define "pre-existing conditions" as illnesses or symptoms that existed before the policy's effective date, regardless of their diagnosis status.

• 3. Prepare Claim Documentation
  
  Claims for outpatient treatment are relatively straightforward, with some insurers allowing online submission. However, hospitalization claims typically require more documentation, including forms signed by the attending physician, original hospital receipts, and medical reports. Ensure all documents are clear and comply with specified policy terms to avoid potential claim denials.

• 4.Be Aware of Claim Deadlines
  
  Medical insurance policies usually specify claim submission deadlines, typically within 30 to 90 days after treatment or discharge. Insurers reserve the right to deny any claims not submitted within this timeframe.