When the Association of British Insurers (ABI) published its new guidance on non-disclosure in Janua...
When the Association of British Insurers (ABI) published its new guidance on non-disclosure in January this year, many were hoping that the industry had finally cracked the old consumer trust chestnut.
The guidelines were designed to reduce the number of declined protection claims, ensuring that customers are treated fairly if they make a genuine mistake when filling out their application forms.
To achieve this, non-disclosure was divided into three categories: 'innocent', 'negligent' and 'deliberate or without any care'. Innocent non-disclosure will lead to a full payout, while negligent customers will be paid a proportion of their claim. Deliberate or reckless non-disclosure will result in the claim being declined and the policy cancelled.
However, while this is good news, it seems that the changes may come with a £250m price tag, prompting the question of, 'who is going to pay for that?' Future policyholders seem to be the answer, with one reinsurer predicting that it will add as much as 6% to protection premiums.
Refuting this allegation, a spokesperson for the ABI said premiums would not increase but the initiative would "drive prices down", as it will boost confidence in the protection market, leading to more people buying cover, which would in effect result in an increase in competition.
Several reinsurers, however, admit that there will be some added cost, but believe consumers will be happy to pay as long as the guidelines reduce the chances of a claim being declined. For example, Scottish Re conducted research last year that showed that half of respondents would be happy to pay 5% more for their premiums if the insurer paid out on claims where answers were missing or incorrect.
While paying a few extra pounds for peace of mind is one thing, it is a completely different matter to launch an industry initiative aimed at increasing consumer trust but then letting policyholders unknowingly pay for it. It is a bit like adding vegetables to a dish because it is healthy, but then charging extra for it without declaring the cost on the bill. The ABI has done well in publishing its new guidelines, but to ensure its good work is continued, it should make sure the cost is transparent.
