Munich Re research has found non‑disclosure to be a lot more common than previously thought. As Lee Lovett explains, stopping it is not easy.
Aquestion: of all the claims paid for life and critical illness policies in the UK last year, how many were paid to people who deliberately lied when applying for insurance - who deliberately and significantly failed to disclose their medical history? Is it one in 50, one in 100, one in 1000?
In fact, based on recent research, Munich Re estimates one in seven claims are paid to someone who deliberately failed to disclose a relevant medical or lifestyle fact on their application form.
In most cases, the information omitted was so significant that the application should have been rejected. This is not an individual forgetting a high blood pressure result from ten years ago or mis-communicating complicated medical information - Munich Re's analysis shows claimants neglected to reveal conditions such as long-term alcohol abuse, depression and even cancer.
This is a systemic industry issue that is not being addressed. Currently, insurers are declining around 2% of life and critical illness claims due to non-disclosure, whereas our analysis shows that the true figure should be at least 14%.
The one-in-seven statistic is one of the key findings from Munich Re's analysis, following work with a UK insurer into the costs and benefits of using third-party medical evidence as part of the underwriting process for life and critical illness products.
Essentially, this gives the underwriter access to the complete medical records held by the applicant's doctor, alongside the usual application form. This information is both extensive and accurate, but the challenge for the underwriter is that it is often a disorganised mass of information that must be sorted and analysed.
So while this information is valuable, as it gives the clearest possible picture of an applicant's health, the cost of processing and reviewing it could outweigh the benefits.
A key point of the analysis was to test whether access to this third-party medical evidence would have led to a different underwriting decision on the case in question. Working closely with the insurer, recent policies were sampled and, with the policyholder's agreement, the insurer requested access to their full medical records.
The case was then re-underwritten using this information. This was a major undertaking: each medical record can run to dozens of pages of information - some electronic and well formatted and others simply electronic scans of handwritten doctor's notes.
