What can the industry do to help encourage full disclosure on applications for protection products?
Market views
Matt Pitcher, Towry Law Financial Services
Application forms for protection products are currently constructed to probe the client for added risk factors. This can lead clients to feel that if the question isn't asked, then they do not have to disclose the information.
However, rather than bombarding clients with a question to cover every condition – where, for the majority, the answers will all be 'no' – it might be more constructive to end with a wide generic question asking the client to disclose anything that affects their health.
It would be better to positively gain the clients' commitment in this way, rather than negatively forcing them to disclose. Most clients are honest – particularly if the sales process involves full advice – and most know their own health better than their doctors.
Clearly, some high-risk factors need to be investigated directly, but some questions are unnecessary. Some providers have application forms that are so intrusive that they have the effect of making clients distrust, rather than buy in, to the disclosure process. It would also be useful if the industry could see its way clear to developing common application forms for certain protection products. This application could be attached to the back of various provider-specific product sheets and would avoid duplication across applications, which also hinders the disclosure process.
Ultimately, if it is clear that non-disclosure could result in the non-payment of a claim, then that is usually enough to persuade the honest applicant to put everything down. We will always have the dishonest to deal with, no matter what we do.
Matt Rann, Scottish Equitable Protect
Better communication is the key to eliminating non-disclosure. For too long, non-disclosure has been an issue that insurers and advisers have preferred not to discuss. However, it can result in non-payment of a claim – which is the worst possible scenario for provider, adviser and client.
As well as the obvious impact on the client, it has a knock-on effect on the credibility of the adviser, clients' confidence in the insurer and the standing of our industry as a whole. Financial advisers should be aware of how non-disclosure and resulting non-payment can affect the reputation of their businesses.
Therefore, advisers should stress the importance of full and accurate disclosure. Neither adviser nor client should be tempted to make a personal assessment of a condition. If in doubt, full details should be disclosed. Detailed disclosure of medical information is less likely to delay or hold up the application than vague answers, which are likely to lead to the insurer asking for further information or medical examinations.
For providers, the onus is on educating advisers and their clients about the importance of disclosing information and making it easier for them to do so. Specifically, this might include measures such as producing clearer and simpler application forms – particularly in the areas pertaining to the client's health, personal medical history and that of their family – and including sufficient cautionary warnings about the consequences of non-disclosure.
Dale Tranter, Sesame
There is always going to be a moral hazard with non-disclosure, whether deliberate or inadvertent. General comments that seem to indicate that there is no need to disclose something (one insurer currently says that there is no need to disclose backache, for example), while appearing to be helpful and making the submission process easier, may in fact be storing up problems in years to come.
So what can be done? Policyholders need to be comfortable that their policies have a chance of paying out. Some critical illness (CI) insurers have for years listed details of individual claims and diseases on which they have paid out. But I think we should also have lists showing otherwise. It would be helpful – to the industry, if not to the offices in question in the short term – if life offices listed all the claims they have declined and the reasons for doing so.
The benefits of this would be twofold. First, it would demonstrate to clients that there is a problem with non-disclosure, and would encourage them to make a clean breast of all their problems, however apparently insignificant. Second, it might encourage all those providers offering activities-of-daily-living definitions under permanent total disability for CI, or 'blanket' back and stress exclusions on accident, sickness and unemployment products, to admit to the deficiencies in their policies and do something about them. Claims declinature rates are something that may well be imposed from on high in the near future anyway – so a bit of pro-activity might not go amiss.
Charlie MacEwan, WPA
The key to full disclosure is two-way communication. This means that information must always be clear; 'small print' should not exist, and application forms should be as helpful and straightforward as possible. In addition, complementary literature should always be available, as this helps to define things like 'chronic conditions'.
Advisers must be qualified and able to explain the effects of disclosure. I am not advocating endless exams, but I do think insurers should regularly review their sales teams. The Financial Services Authority is leaning in this direction and insurers who do this already are ahead of the game.
To keep customers, insurers must work with them, not against them – but the consequences of non-disclosure must be made clear. Ultimately, non-disclosure is fraud. People who do not give all the facts run a very real risk of becoming blacklisted. This is not a one-victim crime – it is one that affects many people, as premiums are raised for the many to pay for the dishonesty of the few.
As part of the two-way contract, customers should be encouraged to challenge exclusions. Insurers should publish details of all complaints, how they were resolved, and the time that it took to resolve them.
