Disclose

No IFA wants to find out that their client's claim has been rejected by the insurer. It is distressing for both the client who, in a time of anxiety, now has another problem to worry about, and for the adviser who sold the policy in the first instance.

Protection products, such as critical illness and income protection, are taken out to provide the policyholder with financial aid after they have suffered a serious accident or illness. If there is medical evidence to corroborate this event then there will usually be no problem with the claim. Similarly, with private medical insurance, if the claimant needs treatment for an acute condition that they have not suffered before, in most cases the claim will be paid without a problem.

However, if a claim is rejected the IFA should understand which courses of action are available should their client wish to dispute an insurance company's decision.

Before making a sale IFAs must ensure their client is comfortable with the different types of contract available and which one best suits their needs. Clients must also be made aware of what they are buying and how important it is to fully disclose their medical background because this will be scrutinised in the event of a claim.

The most effective way of ensuring that the risk of rejection is minimised is to make sure that the medical history requested by the application form is correctly filled in when the client initially applies for protection. Rosanne Jenkins, manager of medical services at WPA, says: "Most customers do not understand insurance in the way an insurer does. They may under-declare simply because they do not feel what, to them, is a trifling ailment is relevant."

It is also prudent for IFAs to keep notes of any particular questions that the client asks at this stage to avoid any problems in the future. Reidy Flynn, at the Insurance Ombudsman Bureau, says policyholders with rejected claims often say that their IFA did not explain the exclusions to them. "In many cases they say that the person recommending the insurance was aware of their medical situation but did not explain that claims arising from that medical condition would not be covered."

However, as well as explaining the products and making sure that the client answers the questions on their medical background, it is important to know what the most common causes of rejected claims are, so that steps can be taken to ensure that they are avoided.

Non-disclosure

The reasons why claims are rejected will vary by product but the single biggest cause of declined claims is non-disclosure. According to Swiss Re, non-disclosure of information is behind 22% of rejected critical illness claims and about 50% of declined income protection claims. IFAs should, therefore, ensure that their client writes down all the relevant details when they fill in the application form.

It is vital that the client answers the questions fully, so if for example, the form asks if the client has had any hospital examinations in the last five years, then every examination should be noted down. Diane Saunders, an IFA, says that it is safest not to give the insurer any reason to reject the claim as a result of non-disclosure. "Even if you have to hand in an application with 14 pages of information on, do not worry about it," she says.

Another cause of rejected claims is when the claim does not meet the required definitions of the insurance policy. One such example under critical illness cover would be a client having had a suspected heart attack although there is no medical evidence to support this. A suspected heart attack is very different from an actual heart attack, and claims administrators can only work with the available evidence. If there is no medical evidence available to corroborate a claim then the chances of success are greatly diminished.

John Gibb, chief underwriter at Standard Life, says: "When someone has claimed and it has been rejected it is usually because they do not understand the nature of the cover involved. The first thing they should do is look at the policy provisions and see what is covered."

Kevin Pearce, protection marketing director at ZIFA, agrees: "We are not in the market of trying to refute claims. We are here to pay 100% of all valid claims and there are certain evidence requirements needed to do that."

By contacting the IFA before they submit a potential claim to the insurer the client should be able to get advice about the likely outcome. IFAs should ensure that the client obtains the medical evidence to support their claim, that claims forms are filled in fully and clear information is supplied to explain the client's condition, as well as medical certificates issued by a medical practitioner. Eugene McCormack, marketing director at UNUM, says that some potential claims can be ruled out before they are even sent to the insurer. "It may sound silly but we do get claims where there is not actually a policy on risk."

However, assuming that the client does have a valid policy then there are still a number of possible problems with some claims areas.

Meeting definitions

Claims for permanent total disability (PTD), under critical illness for example, can cause problems if the client does not meet the strict criteria of the definition. Research from Swiss Re shows that between 1991 and 1997 over 50% of PTD claims were rejected for this reason. A PTD definition typically requires that the claimant is completely disabled and unlikely to be able to return to work in the future.

Lynda Cox, life marketing manager at Skandia, says: "Generally rejections occur because people have not understood what they are claiming for or what they are covered for. We have had claims for a broken leg but you are rarely totally, permanently disabled if you have got a broken leg."

With income protection there have been a number of problems caused by the use of any occupation definition for certain occupations. This has meant that some policyholders have not been able to claim because the nature of their impairment does not fit the definition provided by the insurer. However, this is changing and more companies are now using a specific list of activities of daily living (ADLs) in place of the any occupation definition.

When the client is still at the advice stage it is therefore important that they should be warned exactly what they are and are not covered for under the policy definitions.

Making improvements

The Association of British Insurers (ABI) has now produced statements of best practice for income protection and critical illness, which include standard definitions and are now being used by insurers. And while there are still differences between definitions, they have helped to clear up confusion by describing conditions in less ambiguous language and this should mean fewer declined claims.

Initial steps

There are a number of generic steps that must be followed if a rejected claim is to be disputed with the insurer.

A complaint regarding the outcome of a claim must come from the client, but IFAs can act on behalf of the client if permission is given. IFAs can be of great help at this stage because they can explain things face to face better than someone on the end of a phone.

If a claim is rejected the first thing the IFA must check is that their client has issued the insurer with all the relevant information required on the claim form. If it is felt that it is a valid claim request and there is evidence to back this up, then the client must write or phone the insurer to make a complaint. If new medical evidence has become available since the first claim was submitted then this must now be sent to the insurer. Pearce says: "If there is anything that they are unsure about then they can ask and be talked through the process. We would rather work with the IFA than against."

When a claim is refused and a complaint is made it will be logged by the insurer and passed on to a member of staff at a senior level within the company. The claim will be assessed again and new evidence will be taken into account. Ian Pickett, chief underwriter at Canada Life, says: "There is room for dialogue before both sides reach an impasse. If there is some way forward then we are always willing to look at it."

If the claim is still not accepted, then it will be passed on to the chief executive or a senior manager of the company who, with their underwriters, examine the claim and all the evidence once again. If the original decision still stands, then the client will be referred to the Personal Investment Authority (PIA) and the Insurance Ombudsman Bureau and the matter will be put to arbitration. Around 90% of insurers subscribe to the PIA, who has the power to award up to £100,000 in any complaint.

A case handler at the bureau will request the file papers from the both the insurer and the policyholder. They will make a decision based on their interpretation of the medical records and what the policy should cover. If the client disagrees with the decision by the case handler then the Ombudsman may be asked to adjudicate.

"The decisions are not binding unless the complainant accepts them. If they decide to go to court then they would start afresh. The decision would have no implication on their legal rights at all," says Flynn.

Going to court

The final recourse available is to go to the courts. If the claim is for less than £5,000 then the client can issue proceedings in the small claims court. If it is for between £5,000 and £15,000 then the case will be fast tracked and will go to court within 30 weeks. However, if the amount in dispute is greater than this then the case will take longer to come to court. In all cases it would be prudent to ensure that the client took independent legal advice, perhaps from the Citizens Advice Bureau, before initiating legal proceedings which could prove to be both lengthy and costly.

If the claim has been rejected because the client does not meet the required medical criteria, then provided they keep on paying the premiums and the worst happens at a later date, the fact that they have not been able to claim previously is irrelevant because the policy will remain in force.

To prevent problems from the start IFAs should make sure that the client fully discloses all the material facts at the outset. The client needs to understand what constitutes a valid claim under the conditions policy and medical evidence must be obtained to support this. If a seemingly valid claim is rejected then the IFA should be able to guide their client through the appropriate channels and ease the pressure on them.