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Time for a reality check on protection payout rates?


Despite the protection industry’s publication of claims statistics, the perception still persists among consumers that insurers do not pay out as much as they actually do.

Payout rates on life insurance, critical illness cover and income protection often exceed 90 per cent, providing strong evidence insurers pay the vast majority of claims. However, research from several companies this year has shown consumers’ views on the matter can be wide of the mark.

For example, the 2015 Drewberry Protection Insurance survey found the average consumer expects insurers to pay only half of life insurance claims when the reality is close to 99 per cent.

Meanwhile, British Friendly’s survey among self-employed people found only 2 per cent of respondents believed income protection claims were paid out more than 90 per cent of the time.

Further, research from Aegon found 77 per cent of consumers were unaware statistics showing payout rates were even published and only 32 per cent of respondents had discussed claim rates with an adviser before taking out cover.

With this in mind, what can providers and protection advisers do to communicate positive payout rates more effectively to clients? And will doing so help to increase take up of protection?

Distribute figures widely

Director of Legal & General’s intermediary division Steve Bryan says: “The gap between consumer perception and the reality of claims payout rates is an industry-wide problem. It’s important to distribute claims statistics as widely as possible to strengthen confidence
in the service.”

Bryan points out that it is often difficult to encourage people to think about protection in the first place because they do not like to think they are susceptible to negative circumstances.

“Cover is often put to the back of people’s minds and it takes significant life decisions, such as starting a family or buying a house, to bring it to the fore,” he says.

Because life events are increasingly happening later in life, Bryan thinks more needs to be done across the industry to encourage people to seek financial advice sooner. “Advisers are best placed to raise the benefits of taking out a protection policy and quash any misconceptions that may prevent people from doing so,” he says.

Negative connotations

Aviva chief underwriter Robert Morrison is puzzled as to why the message of high payout rates is not getting through to people.

“We do a lot as individual insurers and as an industry to communicate the strong statistics,” he says. “The Association of British Insurers issues statistics showing the proportion of protection claims as an industry and we produce communications that go out to the adviser community and the media.

“If people come through Aviva directly they see testimonies from customers who have got policies and have used them to claim. There is a lot of stuff we can do.”

Morrison thinks people probably think about the broader spectrum of insurance, rather than protection specifically, meaning they could be influenced by negative perceptions of things such as PPI.

Aegon UK protection director Dougy Grant agrees. “Even if we get claims statistics to the customer, they may then be bombarded with negative stories about insurance, such as flood victims not being paid out on housing insurance because their homes were built on flood plains. That can have negative connotations because people don’t differentiate general insurance from protection,” he says.

Grant points out that claims statistics tend to be picked up by the trade press and advisers, so the public is often unaware of them.

“Perhaps it needs a concerted effort,” he says. “We need to continue to beat the drum with advisers. Protection specialists will use the stats but we want more wealth advisers to make protection a part of their process.”

Partnership head of product development Mark Stopard agrees. “The protection industry is battling several ongoing issues when it comes to consumer engagement,” he says.

“As with other areas of financial services, education is the key to ensuring consumers see a product’s true value. Releasing regular information, not only about claims statistics but perhaps also on average premiums, would help to put this into context.”

Declined claims

CIExpert director and Highclere Financial Services partner Alan Lakey thinks insurers should provide more information about the claims they turn down. “If 92 per cent of critical illness claims are paid, 8 per cent aren’t paid. In many cases there are sensible reasons why. One person could have a broken leg and try to claim for total and permanent disability. But as soon as you put down the claim it’s there in the statistics,” he says.

According to Lakey, around 6 per cent of declined claims on critical illness policies are due to failure to meet the plan definitions, while the other 2 per cent are due to non-disclosure. He believes more information would show consumers the small proportion of declined claims are rejected with good reason.

“It would add kudos to plans and throw out the arguments of those with an axe to grind,” he says.

However, Grant is concerned that a focus on declined claims brings it back to negative territory.

“We should be focusing on the more positive stories,” he says. “The message we want to get across is that 100 per cent of valid claims are paid. A valid claim may be open to interpretation in some people’s minds but it is often black and white.”


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