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Critical differences

Last year, a friend called me on his mobile as he was on his way to the tube station after work. “I think I’m having a heart attack,” he said. I told him to call 999 and wait for an ambulance.

He replied that he would try to get home and see how he felt then. As the tube train wound its way through the London suburbs, he texted me twice to say that he was feeling worse.

Finally, I cracked. I dialled emergency services and told them that there was an extremely ill and stupid passenger about to come out of XYZ tube station in a few minutes. The ambulance arrived at the station just as my mate staggered out. An angioplasty and a stent later, he is fully recovered.

Almost as important, my mate had a critical-illness policy which paid out £100,000, which has helped settle a big chunk of his mortgage and leaves him feeling slightly less worried about his family’s financial circumstances.

The events of that dramatic evening came back to me last week after hearing that chief financial ombudsman Walter Merricks believes one in five critical-illness policyholders may have invalid cover. Speaking on the Watchdog TV programme, Merricks said CI cover was one of the key areas of concern within the industry because the information people give on their applications does not tally with their medical records.

The problem, it seems to me, is what kind of information do insurers require? The TV programme looked at two cases but I want to focus on just one, which means that Standard Life has had a lucky escape this week. Maybe next time, eh?

The case I want to concentrate on concerns someone called Jan Lillywhite who was diagnosed in 2006 with a rare disease similar to leukaemia called aplastic anaemia.

For the previous three years, Lillywhite had paid £75 a month into a CI policy with Legal & General. According to Watchdog, L&G declined her claim because it did not recognise aplastic anaemia as a critical illness at the time Lillywhite took out her policy. Yet it was clearly listed on the claim form sent to her and, just six months after she had taken out the insurance, the illness was included for new policyholders.

Lillywhite was also found to have a tumour on her chest. As tumours were mentioned in her policy, she contacted L&G. It again refused to pay out, this time on the grounds that her tumour was not malignant enough.

This is a company which only last month issued a self-congratulatory press release in which it told the world that 2006 rejection rates for CI claims were 19 per cent lower than the previous year. Meanwhile, claims declined for non-disclosure have reduced by 15 per cent and claims declined for not meeting policy definitions have dropped by 27 per cent. L&G said it paid £92.1m in CI claims last year – 11per cent more than in 2005.

In relation to the claim mentioned in the programme, L&G issued a statement saying: “Once we realised that it would be more beneficial for Mrs Lillywhite to pursue a valid claim for a bone marrow transplant, we acted speedily to ensure that the payment reached her as soon as possible.”

I personally interpret that statement as meaning: “Once we realised that we were going to be dragged through a vast cowshed full of dung by the Watchdog programme, we acted speedily to find any old excuse that would allow us to make a payment to the women without admitting that we had always been in the wrong.”

Am I being unfair to poor old L&G? In one sense, yes, in that I am writing about one company when the problem is endemic in CI cases. If you look at the Financial Ombudsman Service website, there are plenty of other cases where insurers have tried it on.

In the programme, Merricks says: “There appears to be a real gap between the information consumers think they have been asked to provide and what the insurer expects the consumer to have disclosed.”

The problem, it seems to me, is slightly different. CI is an expensive product that would be dearer still – and totally unsellable – unless insurers put all claims under a microscope and accept premiums from people whose claims they are almost certain to reject a few a few years down the line.

Not only is it expensive but the information required for a claim to be met is incredible. Were consumers to realise what is involved, in terms of giving prior information and making a claim, most would never take out the product.

Despite occasionally successful claims, a complicated product is made to appear easy to apply for and cheaper than it is. No wonder they love case histories so much.

nic@inspiredmoney.co.uk>

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