How much will the Association of British Insurers' (ABI) new guidelines on non-disclosure cost, and how much of that will trickle down to consumers?
Alan Lakey, Highclere Financial Services
Non-disclosure has long been a thorn in the side of the industry as it provides good knocking copy for journalists and thereby serves to erode consumer confidence in all financial products.
The problem has been the usual one of subjectivity - was the non-disclosure innocent, negligent or fraudulent? The common view is that insurers will look to wriggle out of any claim if they can, whereas the reality is somewhat different. Nonetheless, where subjectivity is involved there will always be scope for disagreement. Just look at the processes of the Financial Ombudsman Service (FOS).
It is suggested that a lack of trust deters many from making provision for their death or ill-health and the revised Association of British Insurers (ABI) guidelines on non-disclosure serve to provide a more robust structure where consumers can be more confident that genuinely innocent non-disclosure will not be penalised by arguments and non-payment.
Statistics imply that just under 10% of claims are denied due to non-disclosure and while it is impossible to segment these into innocent, negligent and fraudulent categories it is clear that the guidelines will result in increasing payouts.
There are cost implications for this which may be borne initially by the insurers, however the long-term picture is unclear because the added clarity may feed through to increased consumer confidence and a subsequent increase in sales. Of course, it may actually serve to reduce the numbers of fraudulent claims as the scope for deceit has been eroded by the improved parameters.
Andrew Francis, Munich Re
The overall increases are still uncertain as there is a wide range of assumptions to take into account, but they are expected to be relatively small. The cost is likely to be higher for critical illness (CI) than for life, mainly due to the higher incidence of non-disclosure on CI policies. Consumers with guaranteed premiums will remain unaffected by these changes, while those with reviewable premiums may well see a small impact depending on the product they have in place.
As new business is priced on previous experience, any increase in costs will be factored into the reinsurer's and insurer's pricing and may well filter down to the consumer. The cost impact will take some time to become completely clear as disputed claims are usually adjudicated by the FOS.
It is important therefore to focus on mitigating any future increases and this can be done by looking at the process holistically and designing out the opportunity for non-disclosure in the application process. Examples of approaches include tele-underwriting or tele-interviewing, expert underwriting systems, designing processes that allow the distributor to focus on advice rather than underwriting and, above all, by asking clear, unambiguous questions. Reducing non-disclosure at the start of the process should therefore help stabilise prices in the long term.Nick Kirwan, ABI
The first point to consider is whether the ABI guidance will result in insurers paying more claims due to the new best practice level playing field? For those insurers and reinsurers previously working close to the new standard, the difference is likely to be small, but the gap may vary between insurers and reinsurers. As an industry, we do expect to pay more claims so there may be some upward pressure on price but this may not always lead to premium increases.
Insurers can only increase premiums on existing policies if they are reviewable and there is a valid reason specified in the policy. In cases where this applies, any increases would feed into the next premium review.
Increase in new policies would be constrained by the aggressive market - especially in the intermediated and direct distribution markets. These competitive forces will stop insurers offsetting cost increases on their existing portfolios against new business, as they would become uncompetitive with other players who have fewer existing policies.
The fierce market means that premium increases are unlikely to be significant for consumers, or affect their ability to afford to take out cover. And any small resulting increases will be more than outweighed by increased consumer confidence in helping to grow the protection market.Helen Southgate, progress from Royal Liver
Since its launch, progress from Royal Liver has assessed all claims in greater detail regarding non-disclosure. In all cases, it is important to us to be able to consider the option of a partial payout before we decide to decline a claim. We do not see this as a new debate, it is simply about treating customers fairly. For this reason we support the ABI's new guidelines.
While we believe the best practice way to avoid non-disclosure would be to ask the client to check their application details and collect a signature at the end of the process, we do appreciate that sometimes facts are missed out. Our experience tells us that during the tele-underwriting process we can capture more detailed information and even pick up on information the client may not think is relevant to their application.
Over time, when the guidelines have been embedded and claims are treated consistently, we expect confidence in industry claims processes to be stronger. The cost to the consumer may increase by a small margin, but surely the message should not be about the extra cost, it should be around the fact that more claims will be paid as a result. It is also important to note there are other factors than claims experience to consider when pricing products, and they may balance out any increases that result from the new guidelines.
