In his column two weeks ago, Tom Baigrie highlighted the hidden dangers presented by life office consolidation. I also harbour concerns, albeit along slightly different lines. My concern centres on the different attitudes to claim resolution between those companies open to new business and those that have closed.
In particular, I have been analysing the claim-paying records of the various insurers on critical-illness policies. The trend, since 2004, has been for the insurers to be more reasonable, flexible, lenient, fair (choose your own adjective) when considering a critical-illness claim.
Back then, it was not uncommon to find well over 20 per cent of claims being declined, a figure that has been hacked back to around 8 per cent today.
The problem in attempting any analysis is that it is only the active insurers that provide claim statistics. Those companies closed to new business withhold this information.
There is plenty of anecdotal evidence regarding declinatures and I am sure I could produce a Canary Wharf special and base some theoretical hypothesis on out-of-date figures and spurious conclusions.
Fortunately, help is at hand from the unlikely direction of the Association of British Insurers. This less than obliging organisation recently released industrywide figures for critical-illness claims. These confirmed that 89.9 per cent of all claims were met during 2010. Without doubt, such statistics are better than the 73.6 per cent paraded by one particular company in 2004 but they provoke a number of questions and disguise an unwelcome truth.
The ABI does not provide a breakdown of company figures. It has no remit to do this but all the active insurers have announced their 2010 figures and they produce a combined uphold rate of 91.8 per cent. This verifies that the remaining companies average 86.1 per cent.
This differential – 5.7 per cent – is marked. Does it confirm that closed offices are far more stringent in their claim-paying or does it mean that active offices are particularly benevolent? My money is on the former because logic and experience shows that when a life office closes, the service level and the claim assessment standards drop below acceptable levels. This is particularly so when the back book of business is sold to some predatory outfit where the raison d’être is maximising profits by cutting costs and if one of these happens to be a rational appraisal of a claim, then so be it.
No doubt, the closed offices will mutter and moan about their customer service ethics and treating customers fairly and provide all manner of explanation.
To these, and any others who may doubt the facts, I point them towards the concept of transparency. I ask why is it pertinent to disclose claim figures when you are happily touting for new business but then choose to hide them once the shop door is closed?
My challenge to all companies administering closed books is to publish your claim records – then we will know the truth.
Alan Lakey is partner at Highclere Financial Services