The consequences arising from declinature decisions in critical illness claims can be devastating for the policyholder. Alison Turner-Holmes investigates
Thankfully the majority of critical illness (CI) claims are paid in full, relieving the financial stress of the victim and allowing them to concentrate on recovering without financial hardship to themselves or their family. However, insurance claims - be it house contents, holiday or pet insurance - regularly get declined. While this is bad news for policyholders, nothing is quite as emotive as CI declinature. For any provider to have to turn down a claim at a time when the family and sufferer are extremely vulnerable is not easy.
Moreover, CI claims often amount to far more than standard household or pet insurance, where £50 for a lost camera or £5000 for a new carpet is the norm. The amount being declined often exceeds £100,000 and the whole financial existence of the family unit, including the home, can rely on the money coming through.
Non-disclosure
There are two main categories of declined claims: declined due to non-disclosure and declined due to the definition not being met.
Non-disclosure in itself can be broken down into several categories but the long and short of it is that some relevant fact has been omitted from the application, which would have affected the decision to offer the client cover.
In the last couple of years, the Association of British Insurers (ABI) has assisted providers in rewording their medical questions on application forms to avoid ambiguity and encourage the applicant to remember relevant events.
The majority of non-disclosure is innocent non-disclosure where the client does not think the condition undisclosed is of any importance or worthy of mentioning on the application form.
However, the new worded questions have improved this category considerably. And now some providers even have warnings at the top of each page on the application form and include a flyer with their quotes to improve the understanding of what we need to know and why.
Advice is key
The advice given at the point of sale is key. When lengthy application forms need to be completed there is always the desire to just rush through it and send it off as quickly as possible, but in truth this does nothing to enhance the portrayal of accurate information.
In the past, advisers have often been known to suggest what is and what is not relevant, but that is a long gone practice. The underwriter is the only person to say what is and is not important.
Skandia's motto is "just put it down" - it only takes seconds and advisers should not worry about phonetically spelt illnesses. There have been numerous disclosures of "Tonsleyetis" and "Sifoliz", but underwriters are able to translate most things.
It will be interesting in a few years' time to be able to assess the impact of the application form changes, the increased marketing material and, of course, tele-underwriting, which is believed to reduce non-disclosure. But, of course, as of yet there are no statistics available to prove this. All of these have been introduced by the industry, which is showing commitment and the desire to reduce the problem of non-disclosure for all relevant parties.
Definition not met
The other reason for declinature of claims is where the definition is not met. The industry may have a bigger task in solving the problems within this category and desperately needs to increase client awareness of the cover they have taken out. There is the misconception that the longer the list of definitions, the more chance there is of the policy being paid out. In actual fact the list, in a lot of cases, is lengthened not to enhance cover but to enhance point scoring for computerised comparisons.
The truth behind being paid out successfully is to choose the policy that offers the best quality definitions with clear wordings and broad cover. These, however, cost more and while the majority of the market is driven by price and volume, the breadth of cover will not be enlarged for fear of losing market share by providers or sales by advisers. And so the problem of not being covered properly is unlikely to disappear, which means claims will continue to be declined due to the illness not being covered.
By issuing the Statement of Best Practice for CI, the ABI has helped the industry by setting minimum wordings and effectively the level of cover for a number of listed conditions.
However, the understanding by advisers and clients that these are only minimums and that many providers have definitions that are better than these is little known or understood by most.
The best example of this is where cover for prostate cancer is in question. Prostate cancer screening was going to be introduced a few years ago by the Government for all males over 55 years old. The industry decided that a large number of men would be diagnosed after screening but their condition would not necessarily be life threatening and, therefore, did not justify a windfall payment under a CI policy.
The screening has still not been introduced due to the unreliability of available testing methods and yet the industry brought in a minimum definition in May 2003, which means providers do not need to cover early stage prostate cancer.
A few providers still do but how many advisers could tell you which ones? This would be another prime example of a condition not being met and would affect the declined statistics of a provider not offering full prostate cover. There are many other examples of conditions covered like this one.
Retiring provisions
When an adviser recommends a pension scheme to a client, he will be fully regulated, have passed industry exams and know the difference between a s32 and a drawdown pension. This is all good but with a vast number of clients retiring in poor health, all advisers should look at provisions for retiring in this latter state too. And yet CI sales appear to be sold in majority now by Insurance Conduct of Business (ICOB) members or fully regulated advisers who submit protection through the ICOB regime for simplicity.
With the Financial Services Authority and Financial Ombudsman Service being so concerned over the quality of advice given to clients, it is amazing that the subject is lacking in any industry exams for mortgages or Conduct of Business-related business.
Surely better training and awareness would help manage client expectations at the point of sale and reduce the number of declined claims under both headings. Clearly documented advice will also benefit all parties should a dispute arise.
Admittedly, it takes an increasing amount of time to complete the same business as it did before the 'paper revolution'. But long gone are the days of the 'Salesman' of the 'Achievers Clubs' and 'Incentive Trips'.
The claims industry has moved into the professional era where advice can influence the whole welfare and finances of clients. Getting the correct CI policy in clients' hands and knowing that they have cover is a welcoming feeling. Intermediaries' biggest competitors are now the supermarkets and internet, both offering no advice and extremely cheap premiums but, alas, basic products.
This alternative CI acquisition route could increase the declined claims coming through in the whole market and could even further destroy the reputation of the CI sector. Advisers and providers must ensure that they do what they can to maintain a terrific product and improve its ability to pay out and build confidence in it.
Will issuing claims paid league tables help build confidence? Unfortunately, it has not so far - if anything it has had the opposite effect. Many insurers released these statistics to show transparency and meet the demand of advisers who, for years, had asked for these statistics.
Many providers have included all their claims since they began doing business and some have included the last 12 months. If the latter is done they may run over a beneficial or particularly exceptional 12-month period and not January to December.
Some providers have been selling CI policies for many years and may suffer from anti-selection that was more apparent in the past. So while total experience over a long period will give an indication of the quality of the establishment it will not give a definitive guide on which company to use.
The future will be interesting. Just how long will the 'pile it high and sell it cheap' regime last?
As some providers continue to tweak their premium rates by pennies each week just to be the cheapest, it means product development and new initiatives are lacking. While the latter may not be the answer to any of the problems on declinature, it would be a start.
Alison Turner-Holmes is protection marketing manager at Skandia
