It would seem times have not changed for critical illness (CI) insurance and advisers still need to be certain their clients disclose everything asked and fully understand the product if a claim is to progress smoothly. According to reinsurer Swiss Re, which has just released a survey, Claims Watch 2007, claimants of CI in 2006 stated the process was difficult, long and confusing and insurers seemed intent on making it that way.
Out of 11,673 claims in 2006, 15% of claims – excluding total and permanent disability (TPD) – were declined. Non-disclosure has led to 43% of these CI claims failing. Naturally, brokers, lenders and clients all have roles in the disclosure process. But brokers in particular have a responsibility to help clients by presenting the need for correct disclosure.
However, Andy Frankish, managing director of Mortgage Talk, notes clients also need to play their part by estimating their loss of income and the money they will need should illness occur. Although new CI insurance sales fell in 2006 to almost half the level of new sales in 2002, Frankish feels the product has benefits for both customers and brokers.
He says: “Brokers should highlight CI insurance more to customers. If you get a critical illness during the policy term, your insurer will pay the calculated amount of cover at that time. The ability to pay off the balance of your mortgage if you get sick provides massive peace of mind.”
Guidelines issued by the Association of British Insurers (ABI) on CI insurance have provided clarity on the claims process, benefiting customers and advisers.
Matt Morris, policy adviser at LifeSearch, comments: “It is an area that still needs to be looked at. Brokers must ensure clients know they must pay back the loan and when to do so. Advisers have to make things more straightforward because CI insurance is complex and clients need to know how much cover they need.”
Ironically, the need for the claims process to be thorough has led to accusations that it is too long, with the explanation of how to fill in the application itself taking some time.
Nicki Lundy, communications manager at protection specialist Bright Grey, comments: “It can be a hard balance between the need for providers to speed up the process and ensuring clients realise the importance and accuracy of making claims correctly.”
Lundy adds it is vital for clients to be honest: “When in doubt, disclose as much information as possible – even information that seems irrelevant, because any missing information can invalidate a claim.”
As it is, if an insurer refuses to pay out a claim, customers can take their grievances to the Financial Ombudsman Service (FOS), which will look at the application process to see how clear the insurer was or whether the insurer was misled. However, the Law Commission has proposed reforms on CI whereby claims would still be met if a mistake would not have changed the insurer’s decision to pay out. If the error would have influenced the premium paid, a proportion of the claim would have been paid instead. There may be also be further changes to ICOB on the way.
Word to the wise
Definitions of CI have to be precise and meet the wording on policies or most plans will not pay out, according to Neil Hoare, head of marketing at Pink Home Loans. He says: “There is confusion about CI insurance but it is a lack of education rather than anything sinister. Clients do not always realise they may not be entitled to receive a payment if their critical or serious illness is caused by a failure to follow medical advice, for instance. Some do not know premiums are higher if there is a history of illnesses in their family.
“That is why it is important to shop around when choosing CI, not only for the best deal but also to make sure the correct cover is provided and in which conditions a claim can be made. Clients need to examine the policy wording carefully before committing to one policy.”
The Swiss Re report did not just reveal bad news for the industry. For the third year in a row, there has been a decrease in the number of claims outstanding, to 8%. However, the report called for the lack of full data within the industry to be addressed as it could not speak about term assurance or income protection as the sample supplied by providers was not sufficiently large.
Paul Cowman, protection manager at Just Retirement, welcomes the report and the fact 15% of all critical illness claims were declined, which was a 3% decrease on 2005. He says: “Tele-underwriting has helped to reduce declined claims because most clients do not feel comfortable telling mortgage brokers their problems. The improvement in doctor’s notes sent to companies and treating customers fairly have also done their part.
“More descriptive information about critical illnesses in marketing material makes it clearer which conditions are covered and which are not. With all these improvements, at the end of a process, if there are still things a customer has not disclosed I am not convinced this is the broker’s fault.”
Whatever the reason, it remains the case that the paramount job which the protection adviser faces is to impress in clients the need for full and frank disclosure if the product is to lose a growing reputation for non-payment. n