Ten years ago the reputation of critical illness insurance was battered by revelations that around 25 per cent of claims were being declined
Whilst these declinatures included ludicrous claims for broken limbs and the like the headline figure was, not surprisingly, seized upon by newspapers to denigrate both the product and the industry.
This scrutiny and the subsequent initiative by the ABI – which categorised non-disclosure into innocent, negligent and fraudulent – led to a marked decrease in declined claims and a partial restoration of the products lustre.
This transformation is best demonstrated using Aviva’s claims paid figures. Declinatures in 2004 hit 26.0 per cent which subsequently fell to 15.3 per cent in 2007 and then 5.9 per cent in 2011.
Declinatures for non-disclosure fell from 13 per cent to 1 per cent over the same period.
One reason for this turnaround is the more detailed focus on initial underwriting, which has been greatly assisted by the introduction of tele-underwriting, together with a greater awareness amongst advisers of the need to obtain detailed information.
Declined claims have not been eradicated, though. Currently, around 2-3 per cent of claims are knocked back due to non-disclosure and with an ever greater scrutiny and reporting, due to social networking, these frequently find their way into the financial press or onto Facebook with a resulting negative impact on credibility.
Recently two declined claims have made the financial pages and in both instances the insurers have argued that material information was not disclosed at outset. In one instance the client had provided truthful answers whilst unaware of diagnostic information that was held on his medical records.
So how can the industry ensure that these declinatures are not repeated in the future? How many people, hand on heart, can recall their medical history with precision? More pertinently, how many people actually know what information, diagnostic or otherwise, their medical advisers have written down?
For these reasons I believe we need to change the initial underwriting process.
It is clearly unfair, and also subject to an Ombudsman’s subsequent adjustment, if a claim is denied due to some matter beyond the policyholder’s control. I believe the answer to this is for the insurer to obtain the applicants medical records, via a subject access request, at outset. After all, there can be few arguments if they possess all the facts.
Of course, there will be cost implications and greater delays to processing applications but this is a price well worth paying if it erases disputed claims. Some insurers may decide not to request medical records and that is their prerogative.
However, in such instances they will need to accept that in doing so they have removed their right to dispute a claim based on subsequent investigations which highlight discrepancies that would have been unearthed at application stage.
There is a public perception that insurers try all they can to weasel out of paying genuine claims. Disputed claims only strengthen this viewpoint and we must put a stop to this negativity.
Rather than continue to erode public trust by disputing cases that could and should have been resolved at outset I suggest that a slightly dearer plan with the comfort of a smooth and positive claims process would restore faith for both consumers and advisers.
A task for the ABI to prove its usefulness, maybe.
Alan Lakey is partner at Highclere Financial Services