Except in the most bizarre circumstances, it is easy to assess whether a life insurance claim is genuine. Critical illness over is also reasonably simple. Not so income protection (IP) insurance.
There are no automatic triggers, such as a heart attack or stroke, on which a claim is payable. And some conditions, notably musculoskeletal ones, are notoriously hard to judge. Sometimes, the problem may be in the mind. These factors allow the potential for fraud, which costs the general insurance industry £645m a year. But insurance companies must balance rigorous checking that claims are genuine against protecting the honest claimant.
They have traditionally taken medical advice from NHS consultants and GPs and specialist nursing agencies, but are also pioneering posts such as “disability benefits advisers” and “personal claims assessors” to check whether claims merit payment. In extreme circumstances, a private investigator may even get a call.
Marcus Makin, claims manager for the IP division at Norwich Union Healthcare, says some claims are easy. A broken leg playing football should clear up quickly and only a rudimentary assessment is necessary. A report from the patient’s GP should be enough. With more complicated or lengthy claims, staff will be dispatched. Norwich Union sends disability benefit advisers to all claimants within a target six-month period.
“They explain State benefits, help with the claim form and move the claimant towards rehabilitation. We are taking a much more proactive role than before,” Makin explains. Norwich Union also uses an external bank of visiting nurses, as part of its claims checking procedure.
A bit of nous comes into it as well. “If we telephone a claimant at home and they are never there, we make further inquiries. Often there is a genuine reason, if not we may employ a private investigator, as many companies do. Tip-offs are increasing, mainly from ex-wives, next door neighbours and former business partners.”
Dishonesty is not always on the part of the claimant. “Sometimes consultants say there is nothing they can do for a patient, when what they really mean is there is nothing the NHS can afford to do,” Makin explains.
In these cases the insurer may become much more proactive, even paying for medical care to help towards rehabilitation, says Makin. “If we are paying £1,500 a month for a bad back, it is worth us paying £4,000 for a -three-week rehabilitation course for back pain.”
Karen Evans, market analyst with Friends Provident, says it is important insurance companies assume claimants are innocent until presumed guilty. She says Friends Provident accepts 95 per cent of all new claims. Common frauds include claimants who are still being paid by their company and therefore have no lost income to replace, and healthy employees who claim after falling out with their employer.
Friends Provident assigns each claimant a personal claims assessor, with the aim of building up a long-term personal relationship. And it believes it maybe harder for claimants to pursue fraudulent claims if they feel they are deceiving an individual, rather than a faceless company. “They build a personal rapport and we believe this encourages honesty. Moreover the assessor will call at all sorts of times, which causes problems if the person is not genuinely sick,” says Evans.
Developing closer relationships with clients is not just about rooting out fraud, but also about encouraging rehabilitation. Insurers proclaim rehabilitation as “a win-win situation” – if the insurer gets a claimant back to work they no longer have to pay benefits, and the claimant can get their life back on track.
But the claimant’s physical health is not the only area where checking is required. When policies pay claimants a set percentage of pre-disablement income, this income must be assessed accurately, says Ronnie Martin, market manager (life and health) with Royal & Sun Alliance. Checking income from the self-employed can present more problems than employee income, where a P60 clears up most questions.
However, Martin adds that longer-term claimants who are fit to return to work maybe reluctant to do so, not because of dishonesty, but lack of confidence. “We employ rehabilitation counsellors to build self-belief. One-to one counselling can help give claimants the confidence to find their way back into work.”
The return may have to be taken slowly, perhaps returning on a part-time basis, with IP benefits topping up any shortfall. Many clients do not even realise this gradual process of return will be funded by the insurer.
Additionally, some illnesses are harder to gauge than others, says Simon Barwell, marketing manager of personal finance with Swiss Life. Musculoskeletal problems which, he says, comprise 28 per cent of claims, are probably the hardest.
“Many physical claims are easy to prove, but psychological ones are harder. In between these are self-reported problems, where the only symptom is pain. The claimant says their back hurts, but how do you know for sure? In these cases the claims manager has to make a judgement,” he says.
However, we are always looking to prove a claim valid, rather than locking people out.”
So just how tough are IP insurers on claimants? Dale Tranter, protection researcher with IFA network Countrywide, says commercial pressures prevent them from taking too hard a line. Insurance companies are unlikely to risk getting a reputation as bad payers by being too harsh with claimants.
“In a very competitive market companies realise it is not worth the bad publicity by behaving unreasonably, especially with a big network like ourselves that gives them a lot of business,” he says. “Major players such as Friends Provident and Zurich are pretty good companies. Some have paid out where they were not strictly obliged to.”
He says, however, that problems do arise, a good example being with the “own occupation” definition. “If you can’t do one part of your job, does that mean you can’t do any of it? What if a chef does his back in and can still stir a saucepan or chop carrots, but cannot carry sacks of potatoes? Is that a genuine claim?”
Another tricky area is where claimants are off work for some time. “Their old position has been filled but they return anyway, maybe to something less stressful. Does that qualify as own occupation?”
Paul Cowman, protection manager with Guardian Financial Services, says with many insurance companies now owned by multinationals, the UK is learning from overseas experience, where he feels claims have been handled better, particularly in Holland and the USA.
“Active claims management is not the big bad insurance company trying to push people back to work – we have to manage claims effectively because that keeps premiums down for everybody,” he says.
Insurers are increasingly intervening even before the insurance deferral period has expired rather than passively waiting until benefits are paid, he explains: “Early intervention has been the key to getting somebody back to work.
“If they don’t return within a year they probably will never return, as their mindset has changed and they are out of the habit of working.”
New technology has also come to the aid of insurance companies, notably in the detection of musculoskeletal problems. Cowman says insurance companies have access to a machine called Dynatron 2000, which tests muscle strength. “At £1,000 a time we don’t use the machine often, but it can help in difficult cases to establish disability.”
The final resort where fraud is suspected is the private investigator. “Again, we rarely use them because of the expense and legal limitations, only where we have a strong feeling that there is a fraudulent claim.” He recalls one instance where the investigator discovered fraud by twin sisters, who had just one policy between them. One fell ill and the other claimed.
Securing evidence is essential. In another case, the investigator booked a driving lesson with one claimant who was supposed to be housebound, and used the signed receipt as evidence.
“Usually when we confront the client with the evidence they miraculously recover,” says Cowman.
New claims checking systems do not only work in squeezing out false claims, he says, they sometimes pinpoint people who should claim but have failed to do so.
“Someone recently telephoned to say they couldn’t continue premiums because they were too ill to work. We advised them that they were therefore sick enough to claim.”