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Focus on Protection

How do you solve a problem like IPI asks Defaqto’s report on income protection which made for gloomy reading last week.

The bad aspects of the IP market list was more than double in size to the list of good things and the report drew the conclusion that IP policies are based on mutual mistrust between consumers and underwriters.

It says the protection industry uses the ‘spoonful of sugar’ approach to selling policies which does not help consumers fully address their protection needs.

The clichés continued as Defaqto went on to discuss how insurers are in a ‘chicken and egg’ situation and how the definitions of disability used for IP present an ‘all or nothing’ hurdle.

Defaqto drew up a list of six areas which could be revised without the need for a massive overhaul of the industry. These included standardising maximum benefit percentages, publishing claims data – which certain providers such as Pioneer already do, and refunding premiums when someone has been over-insured.

But some think the report missed a trick by not mentioning the consumer confusion around the definitions of IP and payment protection insurance which has been a key issue in previous research done in this area.

Norwich Union has released its claims statistics on critical illness insurance for 2005 which shows that payouts on CI policies were 23 per cent higher than in 2004.

Cancer remains by far the dominant cause for paying out with 68 per cent claiming for this followed by 8 per cent claiming for heart attacks, 6.9 per cent for multiple sclerosis and 5.6 per cent on strokes.

Interestingly, almost nine times more men claimed for heart attacks than women though twice as many women claimed for MS.

The declinature rate is still high at 23 per cent with twelve per cent of claims turned down due to non-disclosure and a further 11 per cent due to policy conditions not being met.

What can be done to reduce the declinature rate? One solution being mooted by the Law Commission at present is to impose a non-contestability period to force insurers to pay out on all claims regardless of non-disclosure if the policy has been held for three years or more.

This has been met with a mixture of consternation and approval by insurers, reinsurers and IFAs, with insurers concerned that it will lead to blatant non-disclosure but similarly predicting that it could be the injection of trust the market needs.

NU’s claims stats show the average policy claimed on had been in force for three years and seven months which adds weight to those who want to extend the proposed non-contestability period to four or five years – more in line with the US and other places in Europe.

But Bright Grey’s Roger Edwards ask whether it could just be overcome by scrapping unrelated non-disclosure altogether.

HSBC says it has seen a dramatic take up of pension term assurance since A-Day and the provider offers rare praise for Chancellor Gordon Brown.

Head of insurance products Dennis Smith says: “It is not common for Gordon Brown to be this generous but in this case he is effectively offering to pay up to 40 per cent of your insurance premium for you.”

According to HSBC, 84 per cent of its life only policies sold are PTA products and says it has identified 22,000 term assurance policyholders who could be suitable to switch to a PTA policy.

So the PTA craze continues to sweep the nation but will Brown withdraw the tax relief when he realises how much money the Treasury could be losing on this?

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