A recent report from the Financial Ombudsman Service showed there was a 17% decline in the number of income protection and critical illness disputes it had received during the past 12 months compared with the previous year. What do you think of these findings, what do they tell you and what is the next stage?
Market viewsKarin Lloyd, Karin LloydPutting these figures in context, there has been a drop in the level of complaints to the Ombudsman overall. However, income protection (IP) and critical illness (CI) have still managed to significantly outperform this, suggesting that the industry has done something positive.
So has the industry simply been paying more claims? Some of the latest CI claims figures from leading insurers would suggest so but this begs further questions. Have companies gone soft, or does this reflect improved underwriting practices like tele-interviewing or better application forms that are reducing rates of non-disclosure?
The Association of British Insurers Protection Committee and the IP Task Force, which is unique in actively engaging independent financial advisers in the debate, may also claim some credit for improved practices. However, this cannot account for a large drop in one year, when a high proportion of the claims received will have been underwritten using old practices and application forms.
Some other published figures cite a much bigger drop in claims declined through misunderstanding of policy coverage than for non-disclosure - is this telling us that initiatives such as Treating Customers Fairly are working?
The next stage must be to continue to try to drive down the percentage of declined claims from preventable means. If these initiatives really are making a difference, we should expect to see a further steep decline in complaints next year. The real challenge will then be to translate this into improved consumer confidence in products that can deliver real value and fill the protection gap.Angus Maciver, Prudential
The findings are encouraging, but looking at last year's figures in isolation does not paint the most accurate picture of the insurance industry.
During the five years from 2002 to 2006, the number of insurance-related complaints referred to the Ombudsman increased year-on-year.
Income protection and critical illness disputes have been high for many years, and what these numbers show is that a rather dire situation is improving but it is by no means fixed. Many claims are still rejected due to the unclear cover provided, as well as non-disclosure, and they affect insurers, advisers and consumers.
The industry should continue to work hard to make sure these numbers keep coming down, and to ensure they stay down while building trust among consumers. Insurers need to tackle these issues at their core, rather than repackaging and repricing the same products.
At Prudential, we developed our Flexible Protection product for precisely these reasons. By taking a severity-based approach, there is the potential to pay claims at an earlier stage of illness, and to match the payout to the expected impact of the condition on lifestyle. There is also the added benefit of continuity of cover after a claim.
Mick James, Standard Life
With fewer individuals choosing the Ombudsman route, it suggests that providers are improving their claims handling services and making more information available to customers at the claims stage. This, in turn, gives customers the information they need to decide for themselves if their claim will be covered under the contract.
A further possible reason is there are fewer declined claims from the industry as a whole. This has been driven in part by the increasing focus on declined claims; the Financial Services Authority's drive towards Treating Customers Fairly (TCF) and continued consumer pressure made visible through programmes such as Watchdog. All of these have sharpened up the way that providers view the issue.
Standard Life is in the middle of a review of some of the most cherished 'sacred cows' in the industry.
For example, we are looking at our claims in order to see if there is more we can do to match up with recent moves on unrelated non-disclosure.
The main theme here is that the industry is taking the issue of declined claims seriously, and this can only be a good thing for consumer confidence.
Justin Harper, LV=
There is evidence among providers that the claims experience differs between recent and more mature existing business, and intermediaries are viewing the start of the application process as just as important as the claims stage.
Application forms are being filled out more accurately, and clients are being advised more strongly with areas of uncertainty double-checked with providers at the outset. Advances in claims support are also helping to increase claims satisfaction, and insurance companies are offering more support services including interactive online application systems.
Communication is key to improving customer understanding, and the media has begun to educate consumers about the suitability of different protection products and the importance of upfront disclosure.
The TCF initiative should start to have a discernible effect. As well as adopting a more balanced approach to claims, we hope more providers will feel compelled to push back and request a case review in cases where a reinsurer declines a borderline claim.
There is a risk that increasing focus on price could have a negative impact further down the line on claims but, on the flip-side, providers continue to improve their risk management systems.
So, while the report findings are certainly encouraging, there is more work needed to improve understanding and satisfaction between clients, advisers and providers.
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