The health insurance and protection market covered
Insurers want to pay claims: Five reasons why 90% of CI claims are paid
The Association of British Insurers (ABI) this week revealed that nine in every ten claims made under a critical illness (CI) policy in 2010 was paid by the insurer.
Compare this to just three years ago, when 84% of claims were paid. That means, in 2007, 16% of claims were turned away by the provider. Or 1,900 claims out of a total of 11,900.
The situation was evern worse a decade or so ago, when the product was suffering a serious image problem.
Since then the market has improved significantly. But why?
1) ABI standard definitions
In 2007 the ABI began introducing standard definitions for many common conditions on critical illness policies.
It is widely felt by many in the industry that this is the main reason for the improvement in claims paid rates by insurers over recent years.
But there are other reasons too that may have flown under the radar.
2) Publishing claims figures
Insurers have been placed under the microscope to show they are as good as their word by demands to publish their claims figures.
However, these results and high claims ratios are now worn as a badge of honour by most providers to illustrate they do meet their promises when needed and has led to a tangible change of attitude throughout the market.
Peter Lurie, director at Proactive Medical and Life, said: "Clarity on CI definitions and the ability for clients to be a lot more transparent when making applications, the two go hand-in-hand.
"Whereas in the past a client may have been wondering if they were going to get [a claim] paid, more recently there's been a shout from the insurers side to want to pay claims because they want to be seen to be much more transparent."
3) Better underwriting
Underwriting claims has improved markedly.
While underwriting at application is more vigorous, this means once claims are made they are far more likely to be approved with little problem.
There is also often greater acceptance of clients with pre-existing conditions - although this will often mean a rating or exclusion for certain related conditions.
However, it means that a client does have the cover they need and if a claim is received, it is more likely to be accepted.
4) CI has matured
As Chris Hulme, director of Clayton Hulme Partnership, said: "The problem that we had 10-15 years ago was CI as concept was still relatively new.
"When you introduce something new, people are either relatively skeptical of it or they embrace it in open arms. I think it was more scepticism in the industry than embracing at that time - and it has been a steep learning curve since.
"The goal posts of learning have moved on constantly because we've got ever changing development in the conditions covered and advances in medical science that are changing those conditions in the first place," he added.
Hulme also noted that advisers have had to develop their medical knowledge further while providers have needed to communicate better with both clients and intermediaries on the issues raised.
5) Insurers want to pay claims
As one adviser told COVER, around 10-15 years ago insurers would often attempt to find any way possible to avoid paying a claim, including using vagaries in interpretation of policies and the definitions within them.
He cited one Multiple Sclerosis claim an insurer denied because, it said, "the disease had not affected her life" - something not addressed in the policy wording.
Eventually the claim was settled with interest, but it illustrated the problems present then.
"The fact more and more claims are successful is due to the pressure on companies to actually pay the claims, and the bad publicity that can come from not paying claims, such as ending up on [BBC's] Watchdog," he added.
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Claims ratios
Hi Pete. It works just as well with long-term insurances. Dividing the claims paid in a year with the monthly premiums taken still shows the worth of the insurance. Life insurers calculate the claims ratio internally, even if they guard it jealously, so they must also find it useful. Insurers are more open with insurances that have high claims ratios, like car insurance and life insurance. With CI, they are very cagey indeed. Neil
Posted by: Neil | Sep 01 2011
Got it - thank you!
I imagine that works well with general insurance when you are looking at annual policies - but with CI is won't be that easy. Underwriting select periods etc?
Posted by: pete wildebeast | Sep 01 2011
claims ratio
Pete I think the claims ratio is usually when you work out the value of the claims being paid as a percentage of the value of the premiums being collected for the product. So it's quite different to % claims paid which is usually just how many that have been declined in any one year. Cheers Martin
Posted by: Martin | Sep 01 2011
Explanation of claims ratio
Hi Pete The claims ratio shows how many pence are paid in claims per pound of premiums received. An 80% claims ratio means that the insurer pays out 80p in claims for every pound received. It could be that an insurer pays out 95% of claims, but that the insurance is so over-priced that the claims ratio is below 50%. This means the insurance is still not good value for money, despite the high settlement rate. To give an extreme example, would you pay £40,000 to get £50,000 of CI, because you knew the insurer paid out 99.99% of the time? You wouldn't because the cost isn't justified. The claims ratio helps demonstrate that cost neatly. The claims ratio is the only figure that tells you if the insurance is good value for money, as it incorporates both the price to the customer and the risk that is covered. It enables you to see whether both cheap or expensive policies are worth the price.
Posted by: Neil | Sep 01 2011
claims ratio
Neil - please tell me what you mean?
Posted by: Pete Wildebeast | Sep 01 2011
What a load of tosh
It makes me laugh when I see such uniformed tosh written. The single factor that has made the difference is the FOS/ABI non-disclosure matrix that has effectively cemented in the interpretation and treatment of non-disclosure across the industry. This is what has added 5% more claims paid across the board. All the other factors are a "so what" in this trend. Dont believe the hype - claims philosophies have softened and that what has impacted upon the proportion of claims paid. It will impact upon premiums because someone has to pay for the additional claims being paid...
Posted by: Jerry Brown | Aug 31 2011
The claims ratio
Hi thanks for responding. I know that insurers publish lots of claims stats, such as percent of claims paid, percent declined due to non-disclosure and so on, but I'm yet to see the claims ratio being published, and I have looked hard, and often. Please could you point me to a couple of examples? Thanks a lot if you can, Neil
Posted by: Neil | Aug 31 2011
Claims stats are widely available
To @ Neil Most providers these days have been showing their Ci claims stats' for a while...very openly... Many publications pick them up and announce them...online or in their hard copy version. Many providers can let you have a copy.... I'm not clear on why you are having trouble reading them....you just need to collate what comes out when it comes out..
Posted by: Another commentator | Aug 31 2011
Claims ratios worn as badges
"...high claims ratios are now worn as a badge of honour by most providers to illustrate they do meet their promises when needed..." Since when did any provider reveal its claims ratio? Please can you write an article revealing those! Neil
Posted by: Neil | Aug 31 2011
And....
Watch Dog FOS ??
Posted by: Pete Wildebeast | Aug 31 2011
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