At the recent COVER Health and Protection Forum, Clive Waller called for greater regulation of back book selling. Do you agree that this would ultimately benefit clients and the market?
Jules Constantinou, Gen Re
Most market commentary has focused on the premise that closed life firms would be more likely to decline claims as they have an obvious interest to maximise their profits and no commercial interest in treating their customers fairly.
A reinsurer may in fact have an opposite view of this risk. Most closed-book transactions have been completed by run-off specialists primarily looking to extract value for their shareholders by streamlining all processes and benefiting from the economies of scale that combining numerous portfolios brings.
To the extent that most protection portfolios are heavily reinsured, a justifiable concern for the reinsurer may be that the claims process becomes an administration exercise with not enough due care and attention being paid to the assessment of the claims, and that more claims are paid as a result.
But this does not seem to have happened in practice as we get as many requests for support for ex-gratia claims from our closed fund portfolios as we do from our open portfolios.
The Part VII transfer process that accompanies most purchases involves a High Court hearing, where the judge needs to specifically consider and address the interests of the policyholders.
The purchasing insurer is still subject to the Treating Customers Fairly principle, the ABI Statement of Best Practice with respect to claims, and the claimant still has the right to refer any claim to the FOS.
It appears, therefore, that regulation in this area is sufficient to protect the interests of policyholders.
Neil McCarthy, Direct Life
To know whether it would be of benefit to a client in the future is dependent on the behaviour of the purchaser of the book going forward, compared to the existing practices of the provider that a consumer could expect when they bought a product.
This implies that there is a benchmark that a regulator could measure - which there isn't.
Going back to basics, what the customer wants is confidence in a provider paying their claim.
I'm always quite surprised that when a customer asks: "Does this provider pay claims?", the industry isn't in a strong position to confidently say: "Yes, and here's the data".
I understand the arguments about different definitions, and partial payouts, but it is not beyond the wit of man to create a solution.
If claims payment practices and accurate claims data isn't measured, how would a regulator assess whether an aggregator of back books is behaving differently?
If part of the regulatory requirement was a standardisation and compulsion of claims payment data, then back book purchasers can be assessed against earlier criteria to see if practices have deteriorated.
The publicity of poor claims management ultimately is negative for the whole market, and consumers of risk products should have the confidence that whoever owns their policy, they can expect consistent interpretation of policy terms.
As a holder of risk policies that are now in the hands of a back book manager, and not the provider who I bought them from, I for one would love to see more information on the way they handled claims.
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