How should an IFA deal with non-disclosure?
The market is currently experiencing a reasonable increase in the number of risk products being sold, particularly term assurances. From an IFA perspective, I would like to think life insurance companies are trying to process new business and, within that, all risk assessment issues, as efficiently as possible, trying where they can not to rely on supportive, expensive and time-consuming medical evidence.
If this is so, a concern must be that there is a possibility a number of instances of non-disclosure (innocent or otherwise) could occur. I appreciate this causes significant issues for the applicants but what is the position as far as an IFA is concerned? Should there be an industry model of how to deal with issues of non-disclosure, which within it could identify who accepts responsibility for ensuring completeness and truthfulness of applications and other forms? From RB, West Sussex This response contains my personal views, and only covers those involved in the sales process from an IFA perspective. I’m sure that like all other areas of the insurance industry, IFAs are becoming more ‘customer focused’ – even ‘customer obsessed’. Therefore they will do everything to ensure their clients are offered an optimum service, which will include trying to ensure nothing stops a claim being made – one of a policyholder’s biggest concerns. So I believe an IFA has a duty to explain the implications of any non-disclosure.
All our IFAs should take the opportunity to remind themselves of the provisions in the statement of long-term insurance practice (SOLTIP) and the life insurance (non-investment) business selling code of practice. It is the intermediaries’ responsibility to draw applicants’ attention to the importance of disclosing all information, medical and otherwise, which could impact on the underwriter’s ability to give a full assessment of the risk.
If you take my own company’s application form, on every page it contains a warning that any non-disclosure could lead to the sum assured not being paid or benefits severely restricted.
I do believe this part of the sales process definitely needs the assistance and direction of the IFA to ensure the applicant fully understands the implications of non-disclosure. Also that the insurance industry is within its rights to refuse to pay or restrict any claims money that would in normal circumstances be payable.
It is true that insurance companies are trying to offer more of an optimum service than say three to five years ago. And compared to the rest of the globe, routine non-medical limits are extremely high in the UK. In the UK for most ages up to 45 there are many companies whose non-medical limits don’t commence until the sum-assured is in excess of £500,000, whereas in other parts of the world this routine level is usually below £100,000. Another point to be considered is that current data indicates non-disclosure only starts to become an issue when the life to be assured is in excess of age 45. I believe these points are worth bearing in mind.
I’m afraid there is no industry model of how to deal with nondisclosure, each company has its own philosophy linked to pricing, design of products and other contributory factors. So the IFA could be in a bit of a quandry regarding how individual companies would react to the various issues of non-disclosure, particularly when it’s not found out until claims stage.
I know the industry is starting to look at the transparency of underwriting and I’m sure this will be one of the areas that will be considered for review. Returning to responsibility and ownership, I think it is accepted that no-one benefits from non-disclosure and the eventual nonpayment of claims. The life industry, life assurance companies, claims assessors, underwriting assessors, introducers of business, the policyholder and the beneficiaries all suffer as a result of claims not being paid due to non-disclosure. At the end of the day it could be the IFA who has to speak to the widow or business partners who may be expecting a cheque for £250,000 and the IFA has to inform them that due to non-disclosure no monies are being paid. I hope this unpleasant scenario can be taken as a reminder to all involved in the sales process that they must do everything they can to ensure those who complete the application forms (hopefully the applicant themselves) are fully aware of all the implications of non-disclosure.
Insurance companies have no problems in paying genuine claims and look to settle them as quickly as possible. But they are always wary of the possibility of non-disclosure. It’s in everybody’s interest to ensure that non-disclosure does not bring the industry into disrepute, and let’s not forget non-disclosure and claims declinature only make up a small percentage of claims.