Playing with fire
Advisers are risking the wrath of the Ombudsman by helping applicants fill in forms – or so ran one of the pull-no-punches views in our critical illness debate. Angela Faherty reports
Johanna Gornitzki: One of thekey issues facing the criticalillness market is non-disclosure.How can the industry beat this?
Nick Kirwan: By focusing on it.That said, there is already a lotof focus on it. The Associationof British Insurers (ABI), forexample, has been doing alot of work on the clarity ofapplication forms and a lotof companies now use theconcept of playbacks – wherethe application form is givenback to customers so they cansee whether the details theyhave supplied are correct.
Bernie Hickman: One thingthat has worked is teleunderwriting.It reduces nondisclosureand allows data to becaptured over the telephone.The recorded conversationmeans it can be used at a laterdate should any questions bethrown up afterwards.
John Joseph: I thought that iswhat IFAs did all the time? Youare reinventing something thatis already there.
Richard Verdin: Essentially,what you are doing isdisplacing the gathering of thisinformation to a time duringthe sale where, arguably, it ismore convenient. The fact isthat all evidence points to thefact that tele-underwritinghas reduced non-disclosure ascustomers reveal more duringthe process because of thequestions asked.
Bernie Hickman: Particularlyif the adviser has alreadywarmed the customer up tothe fact that they will be askedquestions about their healthand is not, therefore, puttingthem through a shock memorytest.
Richard Verdin: We have beentesting the theory over the lastcouple of months by takingstandard application formsand tele-underwriting those.There has been a significantdifference in disclosure. It reallymakes a difference.
John Joseph: Yes, because you are using a trained person tofish for the information.
Richard Verdin: I take on boardyour point, but most IFAs arenot trained to collect detailedmedical information. Some are,but not all.
Johanna Gornitzki: Whatabout disclosing declinedclaims statistics – will this help?
Peter Le Beau: I think thereis a trust issue underlying thenon-disclosure problem. Theindustry doesn’t trust thecustomer to disclose the correctinformation and the customersdo not trust the industry topay out when they think theyhave a valid claim. When thereis a breakdown like that, youhave to find a way round it.What I like about the disclosureof claims is the fact that it ismaking things transparent. Itis one of the ways in whichthe insurance industry will bemeasured in the future. Butobviously there are going tosituations where claims areturned down and it needs to bemade clear why that is.
Richard Verdin: I agree withyou. I do, however, thinkit shines a spotlight on thefact that insurers have beenincredibly inventive in termsof the way they release theinformation. This means theinformation is not comparableand we understand the reasonwhy you shouldn’t compareone insurer with another. Butif you analyse the details of thefirst seven companies whichreleased these stats, it amountsto about £2m a week not beingpaid due to declined claims and£1m a week is not being paiddue to non-disclosure. Thatis a big problem. Insurance isall about transferring the riskfrom yourself to somebodyelse, and advisers aren’t doingthis sufficiently. They areputting themselves at risk byhelping customers completethe application form. It is onlya matter of time before we seecustomers take advisers to theFinancial Ombudsman Service(FOS) for a claim the insurerquite rightly didn’t pay.
Kevin Carr: It comes downto the fact that a recordedtelephone call is morewatertight than an IFA file ofnotes or an application form.
Nick Kirwan: I agree, but wehave to understand this is notthe only solution. It is perfectlypossible for the adviser touse the playback process aswell. I think they can protectthemselves by writing to theclient the next day with a copyof the application form and askthem if the details are correctand to make any necessarychanges. Then there is a recordof that detail.
Bernie Hickman: Many lifecompanies will write to thecustomers anyway and havequite clear warnings about theseriousness of this kind of stuff.That has got to be some formof mitigation for the adviser.
Richard Verdin: It’s managingthe insurer’s risk more than theadviser’s.
Kevin Carr: If customers areprovided with a simple pieceof paper that explains whyclaims might not be paid thenI genuinely believe they will fillout the application forms moreaccurately. Half the issue here isthe sales process. It is not goodenough for an adviser or awebsite to just say: "This coversheart attack, stroke and cancer,sign here."
Johanna Gornitzki: Shouldpublishing claim statistics becompulsory, then?
Kevin Carr: If there is a way ofcollating the data in a way thatmakes it like-for-like, then yes.A move from the ABI towardsthat would be encouraged. Thetruth is that we appreciate thatlike-for-like stats do not exist.
John Joseph: One of theproblems is that when a claimcomes in one of the first thingsan insurer does is send off forall the client’s medical records.When I sign up the client, thatclient gives the insurer theauthority to go to their doctorand get their records, so whydon’t insurers get all theirrecords at the beginning of theprocess? That way you can seewhat the application says andwhat the medical records sayand if there are any problems,underwrite it on that basis orask the client.
Kevin Carr: But then the costwill go up.
John Joseph: But the moneybeing saved on not gettingmedical evidence is being spentin fighting claims that comeback to bite insurers anyway.
Nick Kirwan: There is a biggerissue here as well. Nondisclosureisn’t just criticalillness, it is all protectionproducts. The more we cancrystalise things the better itwill be for everybody.
Johanna Gornitzki: There iscertainly a negative perceptionof critical illness and Defaqto’srecent report criticising the ABIworking party and the FSA forbeing unclear has not helped.How can this be rectified?
Natalie Evans: The ABI andthe critical illness working partyhave recently been doing a lotof work and have launcheda wholesale review of ourstatement of best practice forcritical illness to take on boardsome of these criticisms. Wehave worked with consumersto try to find out whethercustomers truly understandwhat the product is and try tomake sure that the definitionsare a lot clearer. We are hopingthat when we publish thestatement in the next twoor three months there willbe a real change in terms ofunderstanding and clarity.
Kevin Carr: I don’t thinkDefaqto directly criticised orapportioned any blame, I thinkthey asked what could theABI and FSA have done better.The ABI didn’t support thepublication of the claims statsand although I understand thereasoning behind thisdecision, I think from a mediaand consumer perspectivethis was a mistake. Anythingthat is seemingly againsttransparency or honesty in anykind of insurance market doesnot improve trust, and silenceonly implies guilt.
Bernie Hickman: I am notsure I agree with that. The flipside of highlighting the issueof non-disclosure is that youunderstand, provided thesethings are explained clearly. Soif you say to people that veryearly stage prostate canceris not covered, then theyunderstand that.
Kevin Carr: There is no betterway to make it clear to thecustomer than saying: "Theseillnesses are covered, andthese are not." It baffles methat life offices do not defendthemselves more. When youknow you are in the right and acustomer is being defamatoryabout your business, you areallowed to discuss the issues ifthey are doing it. Why do theABI and the industry life officesstay silent when you know youare right? The problem withthat is that silence implies guilt.It’s a bit strong, but it’s true. Inthe media, in the consumer’smind and in my mind as an IFA.In my opinion, IFAs have donemore than insurers to promotethese messages.
Nick Kirwan: I thinkintermediaries are better placedto do this. It is very difficultto make an argument thatdoesn’t look self-serving if youare the insurer. And peoplesay: "Well you would say thatwouldn’t you.” But I think anintermediary taking an insurer’sside is very helpful. We have towork together on this.
Bernie Hickman: I think weare fairly proactive in termsof responding to individualsituations.
Richard Verdin: Insurers don’twant to respond individuallybecause they don’t want to puttheir heads above the parapetbecause people will startremembering which insurancecompany it was that declinedthe claim. That is why they arekeeping their heads down andmaking advisers do the jobfor them so consumers won’tremember the insurer but theywill remember the adviser.
Johanna Gornitzki: Sales ofcritical illness have fallen duringthe last few years and therecent release of Virgin Money’splan shows market innovation.Are we likely to see moreillness-specific policies beingintroduced into the market?
Nick Kirwan: I would like tochallenge the first part of that.There is no doubt sales of newpolicies have fallen, but I amsure there are far fewer repeatsales now in the market. Youare taking a trivial look at thefacts. There are a lot of otherthings going on in the market.
Richard Verdin: Sticking to thefacts isn’t being trivial. The factsare clear – sales have fallen by50% over the last three years.
John Joseph: The problemis that, 10 years ago, I had aclient bank of about 1,000clients built up over 30 years.When critical illness waslaunched they were the righttarget market and I sold, let'ssay, 900 – I would never havebeen able to sell the other100. But the problem is thatof the new clients I take onevery year, say 100, anyonemy age has moved on and Iam now talking to them aboutpensions, not about families. Iam not bringing in the youngerclients.
Nick Kirwan: But all markets gothrough initial stages, growth,maturity and plateau anddecline.
Kevin Carr: Moving on to theVirgin product, are we goingto see more like that? I thinkwe are.
Peter Le Beau: It’s good tosee a new product comingout. One of the things thatreally annoys me about the lifemarket at the moment is thatit is so difficult to innovate.It is the most overused wordand people talk about thinkingoutside the box, but the factis that this industry does verylittle thinking outside thebox. Very few companies arecapable, in my opinion, ofcreating a new product. Wehave had some examples ofreally innovative thinking aboutproducts that would introducea new concept, but companieshave legacy problems and justcannot get it together. It isvery difficult to see a secondgenerationcritical illnessemerging, but what we arestuck with is either the existingproducts or the new productssuch as Virgin’s cancer plan.
Nick Kirwan: The ABI hascommitted to having a lookat developing a new severitybasedproducts. That work ismostly in progress and thereare two things we have to dobefore we can do that. The firstthing is the competition actand the second is that we haveto convince the OFT that it is inthe consumers' interest for usto do that work and secondlywe have to persuade the OFTthat it couldn’t happen throughmarket forces alone. Thebarriers to entry are very high.
Natalie Evans: What we aretrying to do at the ABI is workmore with cancer charities suchas Macmillan and get themmore involved with the workwe are doing so we can usetheir understanding to takethings forward.
Johanna Gornitzki: Do youthink we will see more productssimilar to this being launched?
Richard Verdin: On a directoffering? Yes.
Johanna Gornitzki: Whatabout the intermediarymarket? How will this affect it?
Nick Kirwan: To grow themarket we need to reach outto new customers who don’thave cover at all. Quite a lot ofthe whole market is looking atchanging existing cover. Thereis nothing wrong with that, butit is not reaching out to newcustomers.
Richard Verdin: I think if thisproduct encourages peopleto raise their heads and thinkabout cover and then get morecover later on, then I think itshould be applauded. Everyonewants change but every timethe intermediary market seeschange they do their best tostrangle it do death.
Nick Kirwan: One of the thingsI am very pleased about is thefact that at least it has got thedebate going. And that is agood thing as we need to havea proper debate as to how webest serve the protection needsof consumers. I am a big fanof critical illness but it doesn’tappeal to everybody and noteverybody can afford it. 12million people are covered byit but another 20 million outthere are not.
Kevin Carr: To defend theintermediary market, thecriticism was at the marketingof the product which in myopinion is misleading.
Johanna Gornitzki: Do youthink the product is simpleenough to be sold withoutadvice?
Nick Kirwan: I think gettingadvice on all protectionproducts is the gold standard.But that is not the end of thestory. There are a lot of peoplewho don’t trust the industryand some who don’t know anIFA or can afford one. And wedo need to provide choice andaccess to reach out to otherpeople.
Kevin Carr: On the Virginwebsite it says you haveprotected your income,protected your home andprotected your family. You havedone no such thing. You havebought cancer insurance.
Nick Kirwan: I don’t believethat anybody would go awayfrom that thinking they havebought anything other thancancer insurance. And I thinkthey understand why thatwould protect their home andfamily.
Bernie Hickman: There areconcerns about the detailssurrounding the products'reviewable premiums. I wouldlike to see that much biggerand in the marketing materialand not hidden in the policydocument. And as for thedetails of what you get paidout and when – these are in aa very small font and are longerthan a critical illness policy. Iwould be staggered if a lot ofpeople actually buy it.
Peter Le Beau: I am veryambivalent about the product.I agree with Nick – it is goodthat we are having the debate,but I wouldn’t like to see everycompany in the life marketcome out with a cancer-onlyplan.
Bernie Hickman: The big issueI I have with it is, what is thereal customer need for thisproduct?
Nick Kirwan: There is a veryreal need.
John Joseph: You are makingthe need up. Of course thereis a need, every product hasa need. But this is marketedwrong and it’s priced wrong.It should be given away with apacket of cornflakes.
Johanna Gornitzki: What doesthe future hold for the criticalillness market?
Richard Verdin: Increasingdecline as the public becomesmore cynical about the productand as more advisers moveaway from it as soon as theyrealise they themselves aresometimes contributing toaccidental non-disclousre.
John Joseph: I disagree withRichard on that point. Thereason it will decline is becausethere are is a finite number ofsales that you can make.
Peter Le Beau: The markethas two very good disabilityproducts but both of themneed to be reinvented. Incomeprotection needs reinventionas does critical illness. It is veryhard to see that happening inthe current market.
Nick Kirwan: I certainly hopethat the review of critical illnesswe have done at the ABI willreinvigorate the product.Certainly, feedback fromconsumers shows that it willmake things a lot clearer andthat will be good and shouldhopefully lead to more sales.
Kevin Carr: I am more positiveabout it. I think we will seemore styles of critical illness andincome protection products– we may see combinations ofthose two. I also don’t believethat the consumer perceptionis actually that bad. There area lot of intelligent people outthere who have bought criticalillness.
Bernie Hickman: I thinkcritical illness is set forgradual evolution. Therevolution will be inproducts that pay a benefitwhen you are off sick. IPneeds a lot of work on it.
Nick Kirwan: One of thethings we need to look atin the industry is the gapsand overlaps in the productswe sell. Because they don’tfit together like a jigsaw – itwould be great if they did. Atthe moment there are overlaps,which means the customer ispaying twice for the cover. Ifthere is a gap then they canfall into a hole as the productdoesn’t pay out.
