Fruitless results?

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Can a provider's claims statistics be taken at face value? Dale Tranter dissects the data to examine what contributes to the figures made available to the public

Some commentators have achieved a lot of press from calling for the publication of income protection (IP) claims statistics as well as critical illness (CI) information. Sesame obtained statistics from most of the market as part of its recent IP review, but the figures - while interesting - have to be seen as a blunt instrument if used as a means to identify good claims-payers.

Is Lincoln, with a 2% declinature rate in 2007, really nearly eight times as unlikely to decline a claim as Aegon Scottish Equitable which declined 15%? Surely not. The following points, some of which also apply to CI, are worth bearing in mind when some insurers are making a splash about their statistics for claims paid.

Firstly, the age and shape of a provider's book of business will have an impact as new claims are investigated more. On CI, for example, Aegon's declined claims percentage is around six times that of Guardian's, its closest sibling within the company although they are put through an identical assessment process. If a company investigates all claims on policies that are less than, for example, five years old more robustly than the old ones, then the figures for a long closed company should look more attractive than those of its more recently commercially active sibling.

Friendly Societies such as Holloway and Pioneer laudably decline particularly small numbers of claims - 3.2% and 4% in 2007. These are minnows in terms of IFA market share. Shepherds and the D&G refused even fewer. It should be remembered, however, that these providers will have a lot of short duration and cheap-to-pay claims that serve to increase their claims paid ratio relatively painlessly.

Quality not quantity

Ideally, their percentages should be compared with conventional insurers' for deferred period policies - information which is not publicly available. However, declinature rates of 15%-20% for the afore mentioned societies' principal competitor, Cirencester, which fell to 11% in 2007, are more concerning. However, it is not a society that Sesame's client advisers have said is bad at paying claims, hence its continued presence on the company's recommended list.

The length of time a provider has been in the market is important - a lot of claims paid in the early years may actually be a bad thing as it could be an indication of poor underwriting that weeded out insufficient applications at proposal. Aegon declined 15% of IP claims last year, but having only been around for six years it would be expected to thoroughly investigate all its claims from relatively new policies. LV= and Zurich, given their older books stretching back to encompass Permanent Insurance and Allied Dunbar, have perhaps less excuse for 14.4% and 16% declinature rates. At the other end of the scale, PruProtect's 0% declined should also not be taken as predictive of future statistics.

Little to choose from

Certain providers only have a small number of IP policies. Synergy Protect, for example, declined 75% of claims in 2007. This sounds horrendous at first but this was calculated from only eight claims. This is another reason why relatively new providers such as Bright Grey and Royal Liver are reluctant to release figures. Synergy should at least be commended for being open.

Finally, there will be inconsistencies in measuring declined claims due to some providers' measure of rejection including claims that cannot be technically valid, irrespective of merit such as when the deferred period has not expired while others do not. Similarly, if a client rings a claims hotline and is persuaded that their claim is void, does that constitute a declined claim or one that was never submitted or counted?

So, while claims statistics publication is in principle a good thing, the industry should be careful to compare apples with apples rather than apples with oranges.

Dale Tranter is research manager, protection, equity release and GI, at Sesame.

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