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Critical measures

Helen Pow on how regulation and the industry’s efforts have cut income protection complaints.

There were almost 20 per cent fewer complaints for income protection insurance and 15 per cent fewer for critical-illness products in the last year and many in the protection industry are thrilled to say these statistics show the effects of regul-ation and the industry’s efforts to improve clarity and education are starting to filter through.

The Financial Ombudsman Service annual review, released last month, shows that 891 complaints were received for income protection insurance in the financial year ending March 31 compared with 1,103 complaints in the previous financial year.

Critical-illness insurance also caused fewer concerns. Only 680 complaints were received while 799 cases were recorded in the previous year.

Lifesearch head of protection strategy Kevin Carr believes that a number of factors may have contributed to the decline in complaints for these products.

He says the recent trend to publish claims statistics has improved transparency in the industry. Providers with impressive claims statistics, such as Pioneer Friendly Society which paid out 96.89 per cent of claims in 2006, boost consumer and adviser trust in protection products and encourage other providers to strive for better results.

While recent negative press coverage for some insurance products has turned many people off purchasing protection, Carr says the bad press makes some people simply take more care choosing products that suit their needs and, for this reason, have fewer things to complain about.

British Insurance Association managing director Simon Burgess says that since regulation came into force in January 2005, advisers and providers have taken more care to treat customers fairly.

He says: “People have realised that protection is under the scrutiny of the FSA now so they are doing a proper job. The pre-regulation situation was unacceptable but the industry is being more diligent at the outset which is leading to less complaints later on.”

Torquil Clark Life Insurance director Jason King says says: “There is better disclosure at the point of sale on application. Advisers are making people more aware. Regulation has driven up standards.”

But King points out that the decrease in criticalillness complaints may be due to the fact that critical-illness policies have been falling.

He says sales have been consistently decreasing for the past few years, partly due to increasing house prices and rising interest rates, and if there are less policies sold, it makes sense that less complaints are registered.

Carr says that with the recent barrage of rate rises and house prices soaring, people believe they cannot afford protection so have opted against critical illness. He believes that someone who cannot afford protection cannot afford a home loan but understands that consumers do not think this way.

He says price increases in the past few years, due to problems with reinsurance, has also has detrimentally affected sales.

But not all protection products have seen fewer complaints. Payment protection insurance complaints increased in the past financial year by nearly 40 per cent and industry specialists are not surprised.

An additional 517 complaints were registered with the ombudsman for PPI and MPPI this year. The ombudsman received 1,315 complaints in 2006 but this year a hefty 1,832 cases were recorded. Despite the Competition Commission launching an investigation into PPI and the bad press surrounding the short-term insurance product, it seems that people keep buying the product and complaining down the line when they realise it is not suitable.

Burgess says: “The market is dysfunctional and is working to the detriment of consumers. PPI is systematically missold because advisers are putting greed before consumer wellbeing so I am not surprised the number of complaints has increased.”

Carr says: “Consumers trust people who sell them their mortgage and if they trust them to do their mortgage, they will often trust them to handle their protection.”

The falling number of complaints for income protection has raised hopes that the FSA will take these figures into account when shaping the Icob review.

Carr says: “This is good news for income protection. It shows that the industry is making important moves to improve clarity, rules and information and this is beginning to filter through. I hope the FSA takes account of these figures in its Icob review.”


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