The Law Commission's consultation paper suggests that life insurers should introduce a five-year cut-off period for declining claims for non-disclosure. But life insurance is the only product in the entire protection range to be included. Why do you think this is and, by just focusing on life, will any real difference be made?
Market viewsKarin Lloyd, Karin LloydIt is strange that the recommendations only appear to apply to life insurance, especially when other products are used as case studies in the early part of the report, including a critical illness (CI) case adjudicated by the Ombudsman (para 1.12). Is the Law Commission using the term 'life insurance' as shorthand for all policies written by life insurance companies or is this limitation to life policies intentional?
Much of the public debate surrounding non-disclosure has been provoked by the treatment of CI claims, so a change that is truly restricted to life policies will have little effect unless insurers choose to voluntarily apply the law across all product lines.
In practice, some insurers have already made changes to their internal procedures for all products, such as using a five-year 'look-back' period as proposed and considering the cause of claim in their decision making. It is possible to price for these changes following an examination of declined claims over past years and it would be fair to anticipate that more insurers will take this approach whether the law relates specifically to life cover or if it has wider jurisdiction.
Companies will have to think a little more deeply about how this could affect income protection products where an ongoing relationship with the claimant based on trust is fundamental to the successful management of the product line. Warren Copp, Scottish Re
The move towards a five-year contestability limit on life cover only reflects industry lobbying following the initial paper.
The move towards five years, from the initially proposed three, is certainly a positive step. Initial industry concerns relating to the three-year contestability debate rightly focused on the risk of subsidisation of deliberate non-disclosure to the detriment of all (not least the honest customer) and the potential knock-on effect on ease of underwriting and availability of competitively-priced disability product lines.
A five-year limit offers a more reasonable balance but a rigid cut-off does still bring some risk of the consumer subsidising deliberate non-disclosure once the five years is complete. Disability products such as critical illness (CI) and income protection (IP) are potentially most exposed due to individuals 'taking a chance' on non-disclosing long-term impairments and completing the period before needing to claim.
The latest Law Commission Paper does propose that insurers should still be able to decline claims for deliberate non-disclosure after the time limit (the practical application of this requires further discussion with the Commission). In these circumstances, a healthy balance can be reached where all stakeholders benefit from increased consumer confidence in an environment that still does not subsidise or reward extreme non-disclosure. If a balance is achieved, five-year contestability may be viable across a wider spectrum of products.
Mark Davies, Royal Liver
The suggestion is that the five-year limit would only apply to life cover, not to CI or IP. There is no explicit reason for this distinction and it seems odd given the media focus on CI claims recently.
By separating life cover, the risk is that customers will, inherently, lack clarity. This could be particularly acute where customers were applying for other protection products at the same time as their life cover. Also, the practicalities are potentially unclear for accelerated CI where one rule could apply for a claim on death and one for a CI claim.
The suggestion may result in different underwriting processes for different types of protection to reflect the different legal positions.
The current law on non-disclosure is harsh and has led to industry-based initiatives. These are designed to ensure that a customer who is honest and acts fairly in completing an application is protected. As a result, the impact of introducing such a law may have little practical positive impact on customer confidence and does nothing for claims within five years.
The law should provide a modern framework, but the details should be managed by the industry to ensure they remain flexible and appropriate to customer needs.
Robert Morrison, Bright Grey
The Law Commission is trying to define, in law, the current practice and, by doing so, close any gaps that currently exist. It is not trying to dictate the way in which the industry should operate. These recommendations represent something that is fair and in the interests of both insurers and consumers.
The proposals follow an initial briefing paper published last year. Although this was not a consultation paper, the Law Commission was still happy to hear any comments on its initial thoughts.
As a result, it has refined its proposals and made it clear that the proposed five-year cut-off point applies to inadvertent, unrelated non-disclosure, and not cases where the disclosure is reckless or fraudulent. This move is to be welcomed, as a major concern was that people who had been fraudulent would benefit from a new law.
Some providers may already operate an unofficial cut-off for life cover around the five-year mark. In practice, this may mean that, unless they have serious reasons to suspect fraud, they would simply request the death certificate and pay a life claim.
The reason why the Law Commission has not implemented a cut-off when it comes to CI cover may be due to the extremely wide variety of reasons for a CI claim, plus the fact that medical evidence is always required when considering the claim and, probably the most important, the price implications it would have for CI cover.
