Friends Life has been in the news recently. First we have its initial refusal, since reversed, to produce stats on IP claims. Then we have the case of Nic Hughes who was declined a claim on a life/CI policy for £100k because of non-disclosure. What's going on, asks Richard Walsh?
Let's look first at the latest complaints figures from the FOS. At first glance you might think that increasing declined claims is an industry problem.
The number of complaints that reached adjudication stage for the FOS during 2011/12 were 1432 (term life), 817 (CI), 950 (IP), 513 (PMI) and for 2012/13 (so far) there were 2166 (term life), 1008 (CI), 1038 (IP) 621 (PMI).
Looks bad, but if you also look at the percentage of disputes upheld in the claimant's favour they have gone in the opposite direction.
For 2011/12 vs 2012/13 they are - 23 to13 cases for term life, 31 to 21 (CI), 41 to 28 (IP) and 46 to 37 (PMI).
What seems to be happening is that there are more cases getting to the FOS - maybe driven by claims farmers at the tail end of their PPI bonanza - and that companies' claims people are picking the right ones to dispute. Actually, this is good news.
Let's return to the Friends Life case. What has been reported is that Nic Hughes had not told them about tingling in his face and limbs together with alcohol consumption levels and abnormal liver function.
They found this out from his medical records and said they would not have offered the cover if they had known about these issues. He did however disclose an inflammatory bowel condition.
He took out the policy in 2009. Sadly he died in 2011 of gall bladder cancer and secondary tumours. One question arises straight away - what should they have done with his initial disclosure? Perhaps they should have asked for his medical records then?
They were aware he had health problems so it could be argued they were on notice to get more information. At the time he might well have thought he had told them what he thought was important.
Now we move to what happened at claim stage. They said that if they had had all the information they would not have offered him the policy which brings us to the vexed point of severability ie they might not have offered him the CI bit of the policy but they might have offered him the life bit? Let's give them the benefit of the doubt and assume they would have offered neither. So what went wrong for them?
We all know where tingling is leading too in underwriting terms - it's a possibility of MS and if this had been the cause of claim their position would have been defensible but it wasn't. The alcohol angle is more understandable to the person on the street - for refusing the policy in the first place. But they fell into the classic error of giving both.
Not surprisingly there was a huge campaign based on the tingling as being the reason for their decision. The case was complex but they got what you would expect. Good news for the family but what are the lessons for the industry?
First I think that if people disclose a serious medical condition insurers are on notice to delve a bit more. Just asking for information on that condition to save a few pounds on the cost of the doctor's report is difficult to defend. Second - it is really important to think about the communication of bad news. Choose your reason with care.
It is a good idea that Friends Life is now publishing its IP stats. They need a bit of reputation building.
Richard Walsh is a director and fellow of SAMI Consulting