The recently introduced Association of British Insurers (ABI) guidelines for providers on non-disclosure and treating customers fairly for long-term protection products are designed to bring more clarity and fairness to the protection insurance sector.
The guidance, which has come into immediate effect for all existing and future policies – typically life, critical illness and income protection products – brings in a new category of negligent non-disclosure. In effect, this means the customer did not give relevant information through insufficient care. Insurers are now to deal with this by giving a proportionate or lower payout reflecting risks and premiums paid.
Matt Morris, policy adviser at Lifesearch, feels the guidelines will increase consumer trust and boost profits. He said: “Previously, many claims were at the whim of insurers and it was a grey area, especially in the critical illness insurance market where figures show 16% of claims are rejected and half of these are for non-disclosure. This new proportionate payment approach is designed to reassure customers that product providers will never actively try to avoid paying a claim.”
Previously, the categories of customer non-disclosure included inadvertent and reckless, which insurers agree were not well-defined. The categories created an opportunity for insurers to avoid proportional payouts and they were hit with accusations they were shirking payouts.
The two other levels of non-disclosure remain deliberate and innocent. If a purchaser is deemed to have knowingly withheld relevant information, this is classed as deliberate non-disclosure and the claim is declined and the premium refunded. However, as insurers must now have clear evidence of this, guidelines state this will only happen in a small number of cases.
Conversely, an innocent claim occurs where the customer unknowingly made an error on their form and this should be paid in full.
Nick Kirwan, head of health and protection at the ABI, says: “We want people to take out claims with confidence that they will be looked at fairly. Better communication and improvements in policy application forms have already led to a fall in the number of declined claims for protection policies, and this is sure to help further.”
Clarification of processes
Although Matt Rann, head of underwriting and claims at Aegon, agrees the guidelines will increase consumer confidence, he wants to see how they play out before making a full judgment. He warns: “Although the guidelines are welcome, it will be interesting to see if insurers raise premiums or margins as a result of increased payouts, because the protection market is so competitive.”
The guidelines also have implications for brokers. If non-disclosure occurs through an intermediary, insurers are required to check whether they have disclosed all relevant information to the intermediary. As the intermediary will be accountable if acting on behalf of the insurer, Fahim Antoniades, director of Quantum Mortgages, argues the guidelines will help brokers because it will shore up their audit trails.
He adds: “Brokers should have a robust audit trail if they are acting professionally, and this will send a signal to those who do not have sufficient trails. Brokers need to accept the guidelines in the same way as insurers and give consumers the benefit of the doubt, and then prove this on their books.”
Antoniades feels the regulation is not overbearing and will work against the few insurers who try to squirm out of deals. He says: “As opposed to looking at why clients deserve to be paid, some insurers might point to a box not being ticked as a way to say a claim has failed and that is why we need these guidelines. I am a great fan of regulation, but not over-regulation. People worry a lot but most regulation can be absorbed.”
Among the changes, insurers must now have a legitimate reason for requesting a claimant’s medical records and they must confine this request to information relevant to the claim, effectively preventing insurers looking through notes searching for reasons to reject a claim.
Peter Chadborn, principal at CBK IFA, notes this move was not before time. He says: “The guidelines on medical information are important as they allow clients to feel more confident that advisers are only searching for information relevant to the claim. However, although the guidance should swing the balance towards customers and help them make adequate claims against insurers, it does not mean people can be more relaxed in their disclosure.”
Chadborn points out that the onus remains on consumers to make sure everything on their part is done correctly. “Ensuring the customer is given the benefit of the doubt is important, but at the same time, the guidance tells consumers how vital disclosure is because it spells out the consequences of non-disclosure,” he says.
The guidelines have been welcomed because insurers themselves are very concerned about perception of an industry problem. As Alan Lakey, partner at Highclere Financial Services, points out: “The ABI would prefer a claim to be paid, and ultimately, these guidelines are to shore up the ‘protection gap’ and allow consumers to trust insurers again.”
These guidelines will introduce better processes and should go a long way towards restoring shaky confidence in the claims process. Although there is a general consensus from the industry that the new guidance will improve products overall, it will be up to the consumer to decide if they are willing to perceive the insurance sector in a more sympathetic light. n