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Alan Lakey: Reform CI underwriting to restore trust

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


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Totally agree with Alan on this. It should be up to insurers to underwrite policies effectively – and that means obtaining medical records before the application is accepted. Wriggling out of claims by trawling through medical records when a claim is submitted does the protection insurance industry no good.

  2. Scott Taylor-Barr 5th February 2013 at 4:11 pm

    I think that in the main insurers already have access to most of a clients medical information, if they require it, from the GP.

    However, due to cost/time, it appears that many do not go down this route.

    To then refuse a claim on information that is found on the records later, when this information was available but the insurer chose not to access it, seems very harsh to all involved.

    However, this system relies on GP’s giving information in a timely and cost-effective manner – something that some seem to struggle to do!?!

  3. I disagree.

    After all, how likely is it that there should exist on a client’s medical record a piece of information important enough to affect an insurance claim but not important enough for the GP to have even mentioned it to the patient.

    And as for not remembering…. well if the insured party is taking out a contract for which an insurer may end up having to fork out hundreds of thousands of pounds, I would expect the onus to be on the applicant to make damn sure he/she remembers all his/her pertinent medical history. . The questions on the application forms are there to remind them of these.

  4. I agree that a decade ago decline rates were unsustainable. Better application forms and intermediary education have to some extent impacted upon this. The tail off in new business volumes has meant that the book is maturing resulting in fewer early claims proportionately and few disputable claims.

    The biggest influence undoubtedly is that the ABI and FOS moved the goal posts resulting in a significant reduction in actionable non-disclosure.

    Whether this was right or wrong is a debate that has long been consigned to history but what is true that the cost of this is being picked up by consumers who weren’t economical with the truth. Perhaps this is a price worth paying for greater consumer confidence.

    Jeff, I have never seen you report on a case of blatant non-disclosure where the insurer quite rightly declines the claim or even a claim where insurers have paid where strictly they didnt have to. Perhaps you are partly to blame for life insurers undeserved ongoing PR issues by continuing to put across an unbalanced picture?

    Insurers don’t look for reasons not to pay and declining any claim is a disaster but what is the alternative. A free for all on claims standards or increasing underwriting costs that push premiums up deterring consumers from buying?

    Next time we get a disputed claim, rather than having a social media witch hunt let’s get all information into the public domain and have a reasoned debate as to whether the claim is valid.

    The vast majority will almost certainly involve deliberate or reckless non-disclosure and where insurers get it wrong they will have an incentive to resolve the issue as quickly as possible.

  5. Sue Laing from the risk store, Australia 6th February 2013 at 12:52 am

    I would have thought that it’s impractical to propose any attempt to totally remove declined claims from the landscape – especially those arising from non-disclosure.
    Surely after all the years of defending declined claims stats, isn’t it time to re-focus the consumer on all the claims that ARE being paid and how well that is being managed? That’s what we work to do here – the declined stats aren’t even published as it’s meaningless. There will always be declined claims in every area of insurance. The consumers are driving this single agenda but surely the industry can work to pull it back under its own control, albeit slowly but steadily?

  6. I believe there is a good case for a full copy of the medical notes to be requested prior to accepting the risk on all cases.

    Unfortunately a lot of insurers have recently adopted the approach of requesting ”Targeted GPRs” to reduce the cost to themselves and some more sceptical observers would say reduce their liability to pay a claim for other conditions not disclosed. These targeted reports do not solve the problem of non disclosure of other conditions, receipt of the full notes would solve this.

    The approach of requesting full notes on every case would obviously come at an increased cost which is inevitably passed onto the consumer.

    Therefore is it not time that the industry’s big players got together to make a proposal to the NHS to gain access to the computer systems that all of our notes are now stored on? Instead of paying a fee for each GPR, Targeted GPR or copy of the notes – the insurer pays an annual fee for access to the system. Once the insurer provides proof of the applicant’s consent to obtain the medical records, they are then simply given access to these individual notes? Not too dissimilar to the way mortgage lenders have access to credit files. In the age of technology it seems crazy that we still use the current system.

    L&G have now started requesting Subject Access Requests instead of the more orthodox General Practitioners Reports. This saves time as they do not have to write back to the GP for missing information, it’s cheaper than a GPR and above all else – they are in receipt of all of the notes which should see claims figures improve further over the long term.

  7. Jeff, you are very quiet…

  8. I agree with Sue, the positives of claim handling need to be accentuated as well as realising that improvements can still be made.

    I proposed taking GP’s out of the equation many years ago. GPRs have more than doubled in cost in the last 10 years (er, a bit higher than inflation), and their quality and turnaroun times have deteriorated.

    However, it’s naive to assume that all a person’s medical information will be possessed by the NHS, i.e. private osteopathychiropractor/physio appointments on the high street etc.

    Having analysed CI claims in depth, I suspect advisers would be surprised how many are paid when under current statute law (until later this year at least) the insurer could refuse on the grounds of non-disclosure quite justifiably. One of the greater benefits of the FOS / ABI, and that’s saying something.

  9. I think this article is very poorly thought out. What benefit is there in obtaining a GP report on every application. If you look at a typical companies claims experience these days the vaset majority of CI claims are met. I think Zurich’s claims experience is the last one I can see on this site. They paid over 90% of claims. 8% of the remaining amount were because the clients ailment did not meet the policy definition. Getting a GP report at inception will not get rid of these claims. So we are talking about obtaining GPR’s on 100% of cases to find the 1 to 2% of non disclosure. This would add considerably to the cost of CI cover remember that the reports cost around £100 each. Then an expensive underwriter will have to assess the report. In addition reports typaically take 20-30 days to complete, so don’t be expecting plans on risk quickly for that last minute mortgage deal. A poorly thought out article.

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