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Disclosure delusions

Aegon Scottish Equitable head of underwriting Matt Rann says people do not understand how critical-illness cover works and advisers and providers must educate them on what details must be disclosed

Consumer research suggests that 40 per cent of people with critical-illness cover expect to get a payout for conditions which are not covered by their policy and more than 30 per cent of people think they would get a payout for an illness they have already had but have not disclosed when applying for cover.

These statistics highlight the significant percentage of people who perhaps do not understand the product they are buying or the importance of disclosing information when they are applying for protection cover.

This is an ongoing cause for concern for providers and financial advisers. It shows that the public still do not understand the pitfalls of non-disclosure. Nor do they fully appreciate what protection cover they are buying or what this cover entails.

With all this confusion, it does not surprise me that there is a growing protection gap issue. The industry still needs to engage consumers by communicating the importance of protection. We also need to tackle the trust problem that our industry faces. The more negative stories that people read about declined critical-illness claims, the greater the mistrust. People need to understand the reasons why a provider declines claims. Only then will they start to understand the importance of underwriting and full disclosure.

Providers must be aware of the main issues surrounding non-disclosure and play their part in educating the consumer in what is and is not important when completing their application. It is vital that customers do not overlook lifestyle issues in the application process. The importance of things such as being honest about weight or realistic about alcohol consumption and tobacco usage should be stressed by advisers.

It is equally important to disclose immediate family medical history. Even what the customer might consider “insignificant” medical conditions are crucially important in the application process.

The point is that if your client is not sure if something is applicable, the best rule of thumb is to disclose it anyway. Customers should never rely on the provider to approach their GP for medical information prior to the policy going on risk.

The cover itself is also something that should be closely looked at. With statistics showing that considerable numbers of consumers do not understand what they are buying or will be covered for, it is important to make sure that the level of cover is explained to clients. This is obviously where the value of advice comes to the fore.

On a more positive note, the research did also show that 76 per cent of people would seek financial advice before taking out a CI policy. By seeking advice, people are more likely to be made aware of the importance of full, honest disclosure and the possible devastating consequences of leaving out important information on the application form. This is where providers and advisers should be working together to make the whole process easier and more transparent for the customer.

Information such as clear, unambiguous statistics on claims paid is invaluable to advisers who want to share explicit details with clients taking out cover. Openly providing this full claims’ experience acts as an important tool for advisers when explaining to clients the need for careful consideration when completing the application form. It emphasises the impact that non-disclosure and product misunderstanding can have.

The claim process really starts at the application stage. If clients do not understand what they are covered for up front or do not disclose explicit information when completing the application form, this may lead to disappointment if they need to make a claim at a later date.

To assist advisers to educate their customers in this area, providers should be encouraged to produce marketing material to get customers thinking a bit more about the information they are giving on their application forms.

Checklists on completing an application form and information on the potential consequences for your client of not providing the correct information in the application process is useful.

Providers want to cut the number of claims turned down and the number of referrals to the Financial Ombudsman Service so they should consider what they can do to help. The use of underwriting or claim helplines both for advisers and potential clients should be encouraged. Using underwriting questionnaires to capture additional information can also help in the whole process.

Providers can also review their approach to definitions. Making definitions clearer and more customer-friendly can only increase understanding of benefits such as critical illness, income protection and total and permanent disability. The ABI CI statement of best practice, which comes into effect from April 2007, and the treating customers fairly initiative should also help advisers in this area.

Advisers need to consider all these things throughout the application process to make sure that their clients avoid falling into the non-disclosure trap and providers should do their utmost to help in any way they can to make this as easy as possible.

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