T wo recent income protection (IP) complaints upheld by the Financial Ombudsman Service have put the spotlight on this sometimes controversial claiming process.
Individual IP goes through two underwriting stages – when the policy is set up and when the claim is made. This can sometimes lead to rejected claims and unhappy clients if the information no longer tallies.
The first complaint was made by a nurse and housewife, who took out a policy in 1981 to provide a weekly benefit of £50. Her insurer rejected her subsequent claim because following her illness she could still manage “the normal pursuits” of a housewife.
But the ombudsman declared that because she earned no income from housework, it was unreasonable to refuse benefit.
The second complaint was made by a company managing director who gave up work after a transient ischaemic attack. Medical advice suggested he was physically fit to return, but workplace stress was likely to aggravate his health problems.
The insurer argued that because he was physically fit, no claim could be paid. The ombudsman ruled that returning to work would jeopardise his health and the claim should be paid. But it did say this was an unusual case, and clients with stable medical conditions could usually be considered fit to work.
Financial Ombudsman Service head of communications David Cresswell reports that lack of clarity in policy documentation is behind many complaints.
“There is also a conspiracy between consumer and salesman at point of sale,” he says.
“The consumer wants to hear they are covered for every possible health problem, and the salesman has an incentive to reassure them this is the case. It means the insurer must be absolutely clear in setting out which health risks are covered in their documentation.”
Friends Provident technical claims manager Andy Parkinson agrees that improved documentation and selling processes could prevent many complaints. “If the client does not understand what their policy covers, there is a great likelihood of problems when they claim,” he says.
Another common problem is overinsurance. According to Parkinson, claims may be reduced for two reasons: because the claimant’s earnings in the relevant period before disability did not match the sum assured, or because the claimant is receiving higher continuing income from their business or employer than expected.
Non-disclosure of medical information is another trail likely to lead to the ombudsman. “Sometimes we discover at claim stage that the customer did not supply all the relevant medical history, and we would’ve offered different terms if they had, or even rejected them outright,” he says.
“This is a very sensitive issue because the claimant can see rejection as a slight on a character, even if the insurer is not suggesting fraud.”
Assessing the claimant’s ability to continue working is another “grey area”. Parkinson says: “With IP, the illness itself does not matter, what counts is how the client is affected.
“Often people with the same health problem are affected in very different ways, and medical experts don’t always agree. It can be hard to know whether you’re making the right decision to reject a claim.”
Legal & General director of protection Ronnie Martin advises that if customers and advisers are uncertain, they should mention every possible illness or GP visit on the application form. The underwriters can then decide whether it is relevant or not.
According to Scottish Life head of products Roger Edwards, complaints can arise when the claimant has switched occupation.
“If you start working as an actuary then switch to a job with an element of physical work, the claim could be jeopardised,” he says. “Most people forget to tell their insurer but fortunately most switch to less physical work as they get older.”
For Scottish Equitable Protect, the “any occupation” IP definition has been a source of problems. The insurer has now dropped it from its IP policy.
Head of marketing Heather Armstrong says: “We now offer own occupation and any suited by education or training.
Otherwise you could get a barrister, say, who is expected to work as a cleaner, which can make for a miserable experience all round at claims stage.”