Cherie Lacey, Consumer New Zealand lead investigative writer, said although exclusions and stand-down periods were standard and legal insurance practice, how they applied to mental health needed to change.
"Many New Zealanders are unaware that what they disclose at the GP's office could have ramifications for them when it comes to insurance cover.
"This is problematic because people should be free to discuss mental health concerns without fear of repercussions."
Lacey said poor mental health was a widespread issue in New Zealand with one in five people experiencing challenges with it every year.
"There's a disconnect between how the public views mental health and how insurance companies factor that into their policies."
Lacey said all of its shoppers were offered insurance but most were told they would need to complete extra paperwork for an underwriter to assess whether any exclusion or stand-down period would apply.
To make an assessment on a policy, insurers may obtain a customer's full medical history to determine the risk level of a potential claim. Medical history extends beyond diagnosis and the prescription of medicine; it also includes consultation notes from a GP, so insurers can be privy to what is discussed in the doctor's office.
Lacey said it took issue with insurers making decisions based on medical notes without getting clarity on diagnosis or understanding the circumstances in which someone received mental health support.
It also found there wasn't a consistent approach taken by the insurers with some adding exclusions or limiting cover while others accepted the customer as is.
"Confusion reigned when talking to the insurance companies," Lacey said.
"Upon follow-up, several told us that the initial advice the financial adviser gave was incorrect. Some provided mental health cover, while others couldn't give a clear answer on whether there would be cover without a full underwriting assessment."
She said the investigation highlighted the problems with the insurance industry and how they approach mental health.
"We believe mental health exclusions point to a systemic failure in the insurance market, which could amount to discrimination on the grounds of mental health."
"We think the industry has a lot of catching up to do in terms of their definitions of mental health and consistency in their approach and communication of mental health exclusions."
But in a statement the Financial Services Council said it did not believe the report fairly represented the industry's approach to mental health or the progress that had been made by the sector.
The FSC said it was disappointed robust testing of the underwriting process was not carried out, there was no consideration of how the process had changed in recent years and there was a lack consideration for the wellness initiatives its members had taken to address mental health.
"The investigation placed a large emphasis on a 'mystery' shop of financial advisers and did not actually test the providers' products and go through their underwriting process.
"The role of underwriting in New Zealand is that you end up with the right product for your circumstances. Insurance is a highly individualised product and it appears that assumptions were made about products and the underwriting process."
The FSC said underwriting was an important part of the insurance application process that aimed to achieve fairness between different groups of customers with different risk profiles.
"As mental health related risks are covered by various insurance policies, it is important that these risks are understood and fairly managed."
The FSC said the industry had also made changes to underwriting processes in recent years including some insurers changing the questions they ask about mental health and the underwriting of all benefits where mental health was noted as a risk factor.
"Improved awareness of mental health issues has meant that people are more comfortable to seek treatment and disclose past episodes of distress. In response, 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.
"Underwriting questions and guidelines have generally become more granular to enable insurers to better understand what type of mental health issue the customer is/has experienced and its relative severity."
WHERE TO GET HELP:
• Lifeline: 0800 543 354 (available 24/7)
• Suicide Crisis Helpline: 0508 828 865 (0508 TAUTOKO) (available 24/7)
• Youthline: 0800 376 633 or text 234 (available 24/7)
• Kidsline: 0800 543 754 (available 24/7)
• Whatsup: 0800 942 8787 (12pm to 11pm)
• Depression helpline: 0800 111 757 or text 4202 (available 24/7)
• Anxiety helpline: 0800 269 4389 (0800 ANXIETY) (available 24/7)
• Rainbow Youth: (09) 376 4155
If it is an emergency and you feel like you or someone else is at risk, call 111.
