View more on these topics

We must solve confusing protection criteria


Martin Werth’s recent article, Is Protection Really Dying? raised some interesting points and served to show why, as an industry, we sometimes look past the issues that are really important.

One of Martin’s comments related to permanent and total disability: “The future also lies in consumer-driven innovation. Customers must be at the heart of any new proposition and they invariably assume our products confer greater peace of mind than they do. How else could one explain the fact that 55 per cent of critical-illness total permanent disability claims are declined? Legacy thinking is to improve the TPD definition wording, whereas fresh customer-driven thinking is to understand the underlying cause of the problem.”

I believe that, like many in the industry, he has missed the fundamental reason why 55 per cent of TPD claims are not paid. As with all CI and IP plans, it is the definition wording that contractually determines whether a claim is validated or rejected. TPD generally uses four claim definitions – own occupation, suited occupation, activities of daily living and activities of daily work.

My own suspicions have been verified by a number of reinsurers which have confirmed that the majority of declined claims relate to activity-based definitions. My own research has found that in the majority of instances such definitions fail the policyholder because the degree of disability needed to trigger a successful claim is so extreme.

I submit that activity-based definitions are close to worthless and I no longer use them because I believe they are an open invitation for a claim declinature.

Let us consider the extent of the disability required to trigger a successful claim. A typical activities of daily living definition is likely to require an inability to perform two of six tasks. These might include maintaining bowel and bladder function, putting on and taking off clothing, eating and drinking, moving from room to room, moving from bed to chair and washing in a bath or shower.

A passing glance might suggest that these are reasonable tasks which surely reflect the level of disability required to make a valid claim. If only it were so. Consider the conditions which might fail such a determinant. Surely being blind should reasonably result in a successful claim? Well, no, because all of the above tasks can be carried out regardless of sight. How about two broken legs – surely this must satisfy the criteria?

Actually, no – it is not a question of whether you can easily accomplish these tasks, but whether you can accomplish them at all.

Perhaps the activities of daily work provide a friendlier claim scenario. A typical definition might again require two out of six ADWs to be failed.

Walking 200 metres on flat ground, lifting a 1kg object, using a pen, pencil or keyboard, hearing well enough to understand somebody in a quiet room, speaking ability sufficient to be understood and sightsufficient to read 16-point print.

It appears that the disabilities highlighted earlier will still fail to result in a successful claim. Blindness only fails one, two broken legs might fail two but it is debatable. Other serious conditions may equally fall through the wide gaps that such a definition offers.

The question is, how do we as an industry design a product which is marketable, profitable, sustainable and, most important, one that provides the anticipated level of protection to consumers?

Alan Lakey is partner at High-clere Financial Services and director of Adviser Alliance


News and expert analysis straight to your inbox

Sign up


There are 7 comments at the moment, we would love to hear your opinion too.

  1. Well put Alan.

    Does the answer lie in first asking the ‘consumer’ what he wants and then persuading him/her that you get what you pay for? Something the regulators fail to understand time and again. Fitting a product into a premium in order to sell it is daft.

  2. It’s very worrying Alan that you are even considering that having two broken legs is a TPD as its clearly not a PERMANENT disability. If a client wants to be covered for broken legs then they need IP. Also blindness is already covered under CI and you wouldn’t look to claim under TPD.
    It’s this sort of basic misunderstanding that leads to customers not buying what they thought they were. It makes me wonder if Alan can’t understand this if he should really be advising on this.
    However I suspect that the truth often doesn’t stand in the way of a good story.

  3. Very amusing, really. In fact, as you can probably guess the crucial aspect is that I was also discussing IP, although that part got ‘lost in translation’.

    I fully confess that this was worded in an ambiguous way, apologies.

    I am happy to attend your next training session though. Wealth management, was it?

  4. We have Welsh a word for people who wish to remain anonymous while carrying out personal attacks.. cachwr, look it up.

  5. I have to agree with the general thrust of the article, however i would take it further.
    For TPD, WOP and in particular IP, Own Occupation is everything. You can make a case for Suited Occ for highly skilled people who wont get own occ, but that is primarily because their skills and qualifications would mean they retain a well paid job (e.g. a surgeon who would have to practice as a normal doctor).
    With the decline rate for Tpd especially, it is criminal to offer clients anything else…..

  6. TPD is a great product, it’s been highly successful for years.

  7. Michael H. Jackson 12th August 2010 at 7:57 pm

    As I recall Alan already identified a pretty good solution to TPD in a MM article in June:

    “The expression total permanent disability is a phrase that is commonly understood by consumers …

    …All that needs to happen is for the word total to be removed and then for a further qualification to be added such as unable to follow own occupation or unable to do three of the following tasks.”

    The 55% figure from the ABI is sensationalist and completely misleading. The actual number of claims turned down for TPD is miniscule and much reduced since 2008 due to other measures.

    The industry has wasted thousands of man-hours on this. And everybody just keeps repeating the 55% statistic as if it was carved on a tablet by Moses.

    The sooner the ABI publishes the actual numbers behind the 55% and reports the latest figures, the sooner we can all put this sorry episode behind us.

    Come on ABI, do some good for the industry!

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