Protection premiums may rise due to new guidelines on non-disclosure
By Peter Carvill
Customers could see their protection premiums rise by as much as 6% due to the Association of British Insurers' (ABI) new guidelines on non-disclosure, one reinsurer has warned.
The guidelines, which were introduced in January, were designed to reduce the number of declined claims by allowing for premiums to be paid out if a customer makes a genuine mistake in their application form.
Jason Hurley, head of sales and marketing at RGA, said: "Honest customers could possibly see their premiums increase by as much as 6% because of the change in the rules. The cost to the industry is going to be about £250m, and that has to come from somewhere."
While this view was supported by other reinsurers, they disagreed on the overall cost. Alex King, head of protection marketing at Scottish Re, said: "That figure is a bit high. While the number of claims will rise, the payouts will be less. The increase will also be different for each product – a blanket approach is a bit rough-and-ready."
The new guidelines have categorised non-disclosure as either 'innocent', 'negligent' or 'deliberate or without any care'. Innocent non-disclosure will result in a claim being paid out in full, while customers who are found to be negligent will be paid a proportion of the claim. The most serious non-disclosure, deliberate or without any care, will result in the claim being denied and the policy possibly cancelled.
Warren Copp, chief underwriter for Scottish Re, said he believed consumers would be willing to pay a small premium increase to ensure their claims are paid. He referred to Scottish Re's ReThink research, which found that 50% of customers would support a 5% increase in premiums for the payment of claims found to involve innocent non-disclosure. In addition, the research found that for a price rise of 20%, the proportion of customers agreeing dropped to 15%.
However, the ABI refuted any suggestion that the price of premiums would increase, saying it had taken that outcome into account when developing the guidelines.
Jonathan French, ABI spokesperson, said: "We don't believe premiums will increase, mainly because the initiative was to reduce the number of declined claims and we've long acknowledged that we need to boost consumer confidence in the protection market. If consumers believe that protection products are sound, the likelihood is that more people will buy those products."
He added: "Increased consumer interest will boost competition in the market, therefore it will drive prices down. If there is an increase in the cost of premiums, with protection being so cheap, the change is going to be minimal for consumers."
