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Protection Report No. 8 (page6)

DON’T BELIEVE THE TRUTH?

The boom in critical illness sales occurred in 2002 and by default a boom in sales will lead to an increase in claims, including declined claims. While around 4 in 5 critical illness claims are paid, the ratio that approximately one in five are refused is poor. However, just because one company pays a higher proportion of claims than another doesn’t necessarily make them a better insurer.

With critical illness cover the majority of rejected claims are turned down for two reasons: non-disclosure and not meeting the definition. The majority of non-disclosure occurs on claims made in the first few years of the policy life. If someone is told that something may be wrong with them, or if they feel that something could be wrong, some buy cover and fail to mention the reason that drove them to buy the policy. If such non-disclosure has taken place a claim inside the first few years is clearly likely.

We are often told of cases where the customer had seen one or more specialists, in addition to their GP, before applying for cover - but hadn’t mentioned the GP meeting let alone visits to specialists. The result is often very difficult and sad to accept for both the adviser and the client’s family, but it is what the Ombudsman refers to as either ‘deliberate’ or ‘reckless’ non-disclosure and the claim should rightly be declined. We would expect an insurer who has written the majority of its critical illness business in recent years to have a higher proportion of non-paid claims for non-disclosure in the early years. This point was best highlighted recently by Scottish Equitable who published two sets of data, early and mature, and the difference in the number of claims paid was quite substantial.

If a salesman advised the customer not to disclose such information then I believe the Ombudsman would rule in the customer’s favour – and rightly so.

We’ve seen many borderline cases where the Ombudsman has ruled in the consumer’s favour and my general feeling is that if there is any doubt then the consumer’s view is the one that is upheld. So, when the Ombudsman insists that the insurer was right, we should question whether or not we are seeing the full picture.

So, the claims figures on page 7 are the truth, but how should we use these figures and are they relevant in the advice process? All else being equal, they could be used comparatively, but this is never the case and thus they are not directly relevant to which insurer should be recommended. This is because when we make our recommendations in protection we do so based firstly upon the customer’s needs, then the products available. When we make this recommendation we do not know what our clients might suffer later in life or when, we do not know who will own the insurer recommended, who will make the claims decisions and whether or not the company will still be open to new business.

Past performance really is no guarantee for the future, and in fact the initial premium is more likely to show the claims attitude of an insurer. The cheaper the initial premium is the harsher the underwriting is likely to be, at both application and claim stage. If the Ombudsman thinks the customer wasn’t being honest the insurer will not pay out so consumers should take this message seriously.

What we need is for consumers and advisers to better understand when these policies will not pay out. I believe that the open and honest publication of such statistics can only enhance consumer trust in both the adviser and insurer, and if consumers understand the issues of non-disclosure and not meeting the definition when they apply, then more claims will be paid, which is what we all want.
Kevin Carr, Head of Protection Strategy

What is ‘non-disclosure’? ‘Non-disclosure’ occurs where an insurance applicant does not tell an insurer a fact, which would have led to a different underwriting outcome – typically an increased premium, exclusion or refusal to insure.*
What is ‘failing to meet the definition’? ‘Failure to meet the terms of a policy’ occurs where a claim does not meet the definition set out in an individual’s insurance policy document.*
UK insurers have paid over £1.6 billion in critical illness claims since the start of 2000.*
* Source: ABI

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