Munich Re's Mike Bolshaw discusses the issues around suicide exclusions built into life insurance policies.
As many of us are commuting to work in dark, cold and wet weather conditions after the highs of Christmas and New Year, it's not a surprise that Monday 19 January was dubbed ‘Blue Monday'; the most depressing day of the year.
We may all feel low at this time of year, but we wouldn't go as far as to say we are depressed. Most of us understand there is a very important distinction to be made between feeling ‘a bit blue' and being clinically diagnosed and treated for depression.
However, life insurers need to consider how this understanding translates to disclosure of such conditions when customers apply for life cover.
Munich Re's 2014 analysis highlighted depression and psychiatric disorders in general as representing 17% of all material and deliberate non-disclosures.
As a result, it's quite likely that there are mental health risks hidden within a typical life insurer's portfolio. In order to fully appreciate the risk this presents, we need to understand how such lives are looked at should a claim be submitted against the policy.
Although recurrent depressive disorders are linked to increased cardiovascular mortality, the more apparent risk for a life insurer is of course that of suicide. As insurers we need to protect ourselves against the risk of anti-selection.
Insurers tend to mitigate this suicide risk by taking the relatively simple step of including a first year suicide exclusion. This may seem straightforward, but there are some points seen at the claim stage that cloud the issue.
The pros and cons of a suicide exclusion
Not all major UK life insurers have a suicide exclusion on their life policies and one provider has just reintroduced their exclusion after a period without it.
Those that exclude may argue that this approach is relatively simple and effective and one that most consumers would consider to be reasonable.
After all, taking your own life only months after completing a life insurance contract may suggest a high probability of premeditated intent and as such should not be a valid claim. So why do some insurers choose not to have suicide exclusions, doesn't this expose them to anti-selection?
Not having a suicide exclusion reduces ‘small print' and is one less policy clause for consumers to understand, which has to be a good thing. However, those that argue against the use of suicide exclusions are likely to refer to the overarching legal principle of ‘fortuity' within all insurance contracts.
The need for fortuity prevents a policyholder benefiting from their insurance as a result of their own act, such as suicide in the case of a life contract. The legal subtleties around this topic make this slightly less clear for life insurers.
To argue lack of fortuity, the insurer would need to demonstrate that the suicide itself was carried out purely with the intention of benefiting from the policy. Some describe this as ‘suicide of sane mind' or ‘rational suicide'. As a result, even relatively minor indications of an unbalanced mental state in the individual's history would weaken the insurer's ability to argue lack of fortuity.
Can the life insurance industry have it both ways by including a suicide exclusion and relying on the lack of fortuity argument?
Our legal colleagues are keen to point out that excluding suicide for the first year of the policy term creates an implicit contract expectation that suicide outside the first year would become a valid cause of claim (whether of sane mind or not).
So those insurers that choose to include a first year suicide exclusion in their policies have in effect waived their right to argue lack of fortuity beyond the first year. So no, insurers can't mitigate the suicide risk by doing both.
The Coroner's verdict and a differing burden of proof
To complicate the situation further, even where a first year suicide exclusion exists, there are still grey areas. For the Coroner to return a suicide verdict, they must be convinced beyond reasonable doubt that it was the deceased's intention to take their own life.
This high burden of proof means they may decide they can only give an open verdict (one where the circumstances are suspicious but they cannot reach another verdict available to them) or a narrative verdict (where the circumstances of the death are described but the cause is not attributed to any individual).
Challenges arise at the point of claim due to the burden of proof under insurance contract law being less onerous than that of the Coroner's. Technically the insurer is only required to show that the insured intended to take their own life on the balance of probabilities.
As a result an insurer may be within their rights to decline a claim due to a first year suicide exclusion even in the case of an open or narrative Coroner's verdict.
Although it may be technically correct, an insurer's decision to invoke a suicide exclusion without a suicide verdict is unlikely to sit comfortably with the beneficiary and in such circumstances the Financial Ombudsman Service (FOS) may be asked to review.
The FOS will consider broadly the same evidence as that of the Coroner and, in cases of an open or narrative verdict, this means the evidence will be unclear or ambiguous at best. Therefore, it is the burden of proof argument that becomes pivotal to any submission to the FOS.
To make sure claims assessors make the right decision in such cases, it becomes more and more appropriate for the insurer to register their interest with the Coroner's Office and ensure they are represented at inquest.
In some instances instructing external counsel may be a worthwhile investment as their attendance at inquest allows the insurer to have more direct interaction and involvement in the review of evidence presented.
Investigation of non-disclosure in the context of suicide
Suicide exclusion or no suicide exclusion, the insurer will still have to consider whether non-disclosure has occurred. The 2009 ABI Code requires the claims assessor to have a valid justification for obtaining medical evidence to investigate or rule out non-disclosure.
Is suicide, or suspected suicide, justification in itself? Is there such a thing as a ‘typical' period of mental health issues before an individual becomes suicidal to the point of taking action?
As a general rule of thumb when assessing death claims due to non-accidental causes, the longer the period in force the less likely it is that claims assessors will investigate non-disclosure.
However, if we look at risk factors such as suicidal ideation or attempt, then the picture becomes more complicated. After a clinically reported suicidal incident, 2% of people go on to commit suicide within a year. After five years the rate of successful suicide is up to 3% and up to 7% for periods longer than ten years1. Time, in this instance, isn't necessarily a healer.
Looking at such mental health statistics may justify investigations into potential non-disclosure for all claims as a result of suicide, irrespective of period in force. However, such an approach is likely to be poorly received by beneficiaries, consumers and the FOS.
Therefore, we must come back to considering whether the underwriting of mental health is appropriately robust and takes into account the applicant's own understanding, or lack of understanding, of both the underwriting process and their own condition.
The stigma of mental health disorders and putting the underwriting ‘on notice'
Generally the view of claims assessors is that any disclosure of mental health issues at proposal is likely to be understated and should be investigated. Even with intelligent underwriting engine drill downs and reflexive questioning, answers captured can be ambiguous enough to weaken our arguments for non-disclosure at the FOS.
Claims assessors (influenced by the benefit of hindsight of course) could argue that any vague or ambiguous mental health disclosures made at the first stage of underwriting such as ‘low level depression in past', ‘medication given but not taken' should put the underwriter sufficiently on notice to step away from the applicant disclosure route and go straight to the GP.
The reality is that insurers need to get the policy on risk with minimal intervention and minimal delay. Further investigation via the GP is avoided if possible, and that perhaps is fair enough.
What causes more concern is that those designing application forms, underwriting rules sets or mental health questionnaires may assume that such questioning can be relied upon at claims stage should non-disclosure be identified. Our experience suggests this is not the case.
You can only take detailed questioning of the applicant so far before you are relying too much on the patient's own understanding of their symptoms, diagnosis and treatments. In addition, and despite good work being done by various support groups and charities, the stigma of mental health issues remains.
Because of this, some applicants who disclose minimal psychiatric impairments or conditions may be doing so to a level that they feel will raise a red flag with the insurer who they assume will then get further medical information from their GP.
Whether the claims assessor could, or should, act on any such misrepresentation becomes more contentious as a result. Making a full and frank disclosure of all the detail is a step too far for many, particularly where a third party such as an IFA is involved and/or where close family members are present who may not be fully aware of the extent of the condition themselves.
Insurers are considering ever more intelligent ways of understanding the triggers for potential non-disclosure and how they should adjust their questioning or evidence gathering.
When it comes to non-disclosure of mental health concerns, one relatively straightforward addition could make a difference. Perhaps where an intermediary is involved the applicant themselves should be given the option to discuss their proposal, or any elements of it, direct with the insurer's underwriter, in private and away from their spouse and their IFA.
Knowing what really happens at claim
The industry is likely to continue using suicide exclusions and in doing so, insurers are advised to be aware of their limitations. It is also essential that they prepare for challenges on claims for ‘rational suicide' in the later periods of a policy as well as claims where suicide is likely but not proven beyond reasonable doubt.
Considering earlier and more effective engagement of claims professionals with third parties such as the Coroner's Office and the FOS will therefore be important.
As for non-disclosure of mental health, it's very likely that a more simplistic and human approach to underwriting may show surprising results when it comes to drawing out the truth.
In addition, it increases the likelihood of being able to defend an argument of deliberate non-disclosure at the claim stage.
Knowing that the underwriting process is robust and acknowledges the particular sensitivities of mental health disclosures means claims assessors can move more swiftly to payment of benefit.
Ultimately, anything that can be done to reduce delays and the need for uncomfortable questioning during the assessment of a suicide claim avoids causing further distress to family members and beneficiaries during an unimaginably difficult period.
Mike Bolshaw is head of claims at Munich Re UK & Ireland Life