View more on these topics

No claim bonus

I think someone somewhere once said in regard to the investment universe that past performance was no guarantee for the future. But when it comes to protection claims, in particular critical-illness claims, a life office’s performance of paying claims should be taken into account when recommending to a client, should it not?Early guideline documentation from the FSA suggested that both financial strength and claim history should be considered when giving protection advice.

However, protection is different to other areas of financial services. From pricing and commission to underwriting and product complexity, many areas of its design operate differently compared with the savings and investment market, including how we view past performance.

At a recent dinner, I sat at a table hosted by a major protection provider and the conversation was on the changing nature of the critical-illness market, in particular rising premiums, the potential effects of regulation and the importance of advice.

A person from the life office said: “You see, you know with us that we might never be the cheapest on the list but it is about quality and you know with us that your client’s critical-illness claim stands a far better chance of being paid.”

The general response was agreement as it was acknow-ledged that this company has an excellent history of paying claims.

However, I asked: “History is one thing, the future is another. Can you say your office is more likely to pay claims in the future, no matter how or when they occur, than an alternative, less expensive, office?”The person from the life office replied, yes they can.

I was not convinced. Let me explain why. Can advisers possibly have any idea about who will merge with whom (Commercial Union + General Accident = Norwich Union) or who will buy who (Abbey = Santander), or who will reinsure who (Munich, Swiss, RGA) or indeed which offices will till be open to new business?There is no doubt that some offices have a better history of paying claims than others but that is the past.

After a recommendation, if ownership and reinsurance change, how can we predict what a life office’s stance will be on borderline claims in five to 10 years? We do not know when our clients will be making a claim.

Let me take Swiss Life as an example. I have placed a fair amount of business with the group and, given the product features at the price available at the time, I intend to keep it there. However, the book of business has since closed, everyone I knew there has long since gone, there is no need to protect a brand name in the media and public eye, the admin is outsourced and the book of business was eventually sold.

Can we say that we would fully expect Swiss Life’s original ethos of considering borderline claims favourably to be maintained?It might be but it might not. A good claims’ history may still be common reason in the market for recommending a particular provider but we do not know when our clients will claim, what they will claim for or who will be making the decision and what other factors could be relevant at the time. As such, past performance really is no guarantee for the future.

The truth, in summary, is that unless life offices choose to be more open about claims and reinsurance, I do not see how intermediaries can continue to bring claims’history into the recommendation process.

I fear that market volatility has left IFAs unable to consider the claims’ history of a group and, for those that still do, it achieves little else other than adding an extra couple of lines – and liability – to their reason-why letters.

Providers should continue publishing claim statistics, not to endorse their own future claims’ ethos but rather to help advisers explain what constitutes a claim and what does not – and what better way than an annual update of claims paid and those not paid?Instead of claims’ history, protection advisers must consider the price and the number of conditions covered, as in the mass market these often dominate sales. Issues such as occupation class and the specific definitions used within those conditions should be taken into consideration, as should the type of premium.

However, first consider if critical illness is the most suitable product. TPD (total and permanent disability) provides a good example. If we took the claim history on this section of critical-illness cover into account, understood by many to be in the region of around 50 per cent decline, we might end up recommending something completely different to start with, Income protection for example. Now, there’s a thought


Venturing forth

The decision of the four Murray VCT boards to sack Murray Johnstone as manager and move the contracts to Close has surprised many industry commentators.

Payout earmarked for Eurolife investors

Investors in the Eurolife Secured Bond have been asked to vote on a partial repayment after the bond defaulted.About 2300 investors should have been repaid abpout 17m of capital on January 23. After three weeks of negotiations they are now being asked to vote on the chance to back a minimum 60 per cent of […]

Osmond ups HHG offer to hold off Resolution

Hugh Osmond’s Life Com-pany Investor Group has inc-reased its offer for HHG Life Services in return for HHG cutting off negotiations with Resolution Life.

Brexit Commentary from Natixis Global Asset Management

By David F Lafferty, CFA, SVP – Chief Market Strategist Thursday’s historic Leave vote in the UK will have both immediate and long-term consequences for the global economy and financial markets. The initial flight-to-quality reaction across asset classes has been exacerbated by the market’s misplaced confidence in a Remain victory leading up to the vote. Stock markets […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm