How attitudes can change! A year ago leading health insurers commonly ridiculed the idea that they would ever sell products online without requiring a signature. But now the apple-cart has started rolling everyone seems intent on piling on board.
Legal & General, which has permitted paperless applications for term assurance since October 1999, has been the main trailblazer. It extended the approach to critical illness and income protection via its e-Protection Choices menu in April 2002 and to private medical insurance in October 2002.
Friends Provident, Scottish Provident and Bupa have also ventured down this route during recent months. Swiss Life and Canada Life intend to go paperless in due course and numerous other insurers acknowledge that they are seriously considering the proposition.
Don’t want your autograph any more…
In other words, it may only be a matter of time before signatures have virtually no part to play in health insurance and protection business conducted online. Contracts involving insurance do not require a signature to be considered binding by law, although insurers have traditionally insisted on them as a way of ensuring clarity and certainty of intent.
Nevertheless the recent trend for paperless applications, which waives the requirement for signatures on direct debit mandates as well as on applications, has resulted primarily in response to demand from IFAs. It enables them to complete and submit forms immediately either while still with clients or after having obtained the necessary information from them.
Some insurers expecting to adopt the approach admit that they still harbour reservations about the risks involved. In theory, intermediaries could set up false policies to obtain commission or policyholders could claim they never took out policies and demand a refund of premiums several years down the line.
Nevertheless, Legal & General, which has never had a dispute to date concerning a paperless transaction, does not seem to be losing too much sleep over such possibilities. Graham Newitt, protection and housing director, says: “Signatures can be forged and at the end of the day I’m not sure their presence makes that much difference. Most of the potential abuses can also be carried out by paper and I feel the risks are pretty well balanced between the two options.
“The fact that someone has been paying a regular premium by direct debit should be considered pretty significant proof of intent to purchase but the situation has never actually been tested in court.”
How do you cover yourself?
In practice there seems only one risk that intermediaries should spend any time worrying about. In the event of a claim being turned down for non-disclosure there is a danger that a client may try to blame them for entering the wrong information on their behalf at outset.
The issue is supposed to be addressed by the fact that insurers normally send clients a copy of the electronic submission through the post asking them to reply only if information is incorrect.
But this safeguard is far from watertight and there is much to be said for following the example set by Michael Webber, proprietor of The Health Insurance Shop, a low cost intermediary based in Mere in Wiltshire. Webber observes that clients tend to notice receiving the hard copy but that very few of them ever actually bother to check it on the grounds that they had trusted him to get it right.
For his own protection he therefore gets them to complete a paper-based application after the sale wherever possible, saying that it is just for his records and for their own protection because there is a danger that they could forget what they had said in the future.
It is likely to take several years of widespread usage before fears about the risks associated with paperless applications can be proved groundless and by that time the system will hopefully have undergone an important piece of fine-tuning.
A current drawback is that GPs will not release medical reports to insurers unless patients have given their consent via a signature, meaning that insurers requiring further medical information need to get clients to sign a hard copy of their application. The situation, however, does not seem insurmountable.
Paul Pettitt, managing director of ORIGO, the UK e-commerce standards body for financial services, says: “The BMA is beginning to listen to us following our lobbying and I wouldn’t rule out something happening in a year or so, although it may require encryption and digital signatures. Hopefully, life offices may be able to obtain not just the individual’s consent but also GPs’ reports electronically.”