Industrywide efforts to standardise and modernise new critical illness (CI) wordings have not prevented the product from continuing to suffer severe bouts of media bashing.
Rejected claimants are increasingly turning to the national press in the hope that their insurer will buckle under the adverse publicity. For the journalists concerned the opportunity to detail the plight of a helpless individual up against a supposedly unscrupulous multi-million pound organisation can be like manna from heaven.
In some cases the insurers deserve the adverse publicity but in others they certainly do not. Furthermore, although the media is also showing increasing interest in positive stories about CI, these are much harder to illustrate with case studies.
Those who have received CI payouts tend to be publicity shy for quite understandable reasons. Many are unwell and reluctant to be photographed. Others simply do not want to publicise the fact that they have acquired a substantial capital sum.
The most recent work on policy wordings carried out by the Association of British Insurers’ (ABI) Critical Illness Working Party could, in due course, help to reduce the scope for misunderstandings about what is and what is not covered. But it is early days.
ABI members are not actually obliged to introduce the recent changes to prostate cancer and heart attack definitions until the end of May 2003 and even then they only have to apply them to new policies.
Even the compulsory elements of the original standardised wordings contained in the ABI Statement of Best Practice for Critical Illness Cover, unveiled in May 1999, have only actually been required to be in force for new policies since the end of June 2000. Some insurers have introduced them retrospectively but others have not.
TPD disputes Although these provide standardised wordings for major exclusions and for seven core and 13 non-core illnesses they do not cover total permanent disability (TPD), which – although it accounts for well under 10% of all CI claims – leads to proportionately more disputed claims than any other condition. Excluding TPD, around one sixth of all CI claims are declined but for TPD claims the declinature rate is nearly two thirds.
Because TPD definitions are occupation related and the average age of CI purchasers is only 36 there are obvious problems in determining whether claimants will be able to work again. Unfortunately many policyholders are given the impression at outset that TPD will act as a sweeper to cover any condition not specifically listed by the policy. In practice, however, many people are left too disabled to work but not sufficiently disabled to claim.
Although the ABI Critical Illness Working Party has made some progress on TPD by producing standard definitions for the terms “permanent” and “irreversible” it is not making any predictions as to when it will be able to come up with a suitable standard definition.
Adverse attention CI working party chairman Nick Kirwan admits that even those definitions that have been produced for other illnesses have not yet really been tested in battle conditions.
He says: “Around half the 4.5 million policies currently in force have been taken out during the last three years and although most of these have been using the new definitions they are not typically the ones to have seen claims yet. There is usually something of an initial claims honeymoon period for about four years because underwriters weed out many of the bad risks.
“The hard core of claims are likely to occur over the next few years and this will result in even more adverse media attention, not because the proportion of unpaid claims will be any higher but simply because the sheer number of claims, and therefore also number of unpaid claims, will be higher.”
But on a more positive note (for the insurance industry, at least) Kirwan points out that we will also in due course arrive at a situation in which everyone will know someone who has had a CI payment.
Intermediaries have a vital role to play in preventing future claims problems from occurring and many useful steps they can take towards this end are outlined below.
Failure to disclose Around two thirds of unpaid CI claims are declined because the condition falls outside the scope of the policy’s definition and a further quarter are rejected because the policyholder failed to disclose all relevant information at outset.
Intermediaries should be aware that those CI insurers that are cheapest on price do not always offer the best cover. Alan Lakey, partner at Highclere Financial Services, an independent financial adviser (IFA) based in Hemel Hempstead in Hertfordshire, says: “I have seen a lot of general IFAs quoted in the national press recommending companies such as Legal & General and Norwich Union, which were the keenest on price at the time but which don’t have the most comprehensive cover.
“It’s not just about the number of conditions covered but about very small, but crucial, definitions in the wordings. Norwich Union, for example, does not pay out on Alzheimer’s claims diagnosed after the age of 60 while Legal & General limits angioplasty claims purely to balloon angioplasty as opposed to other techniques and still insists on 70% obstruction to both arteries. Most other providers only insist on 50% obstruction and cover other techniques like atherectomy and rotablation.“
Definition issues Discussing a range of different contracts with a client and paying attention to how definitions differ is a good way of ensuring that the focus remains as much on quality as it does on price.
At the very least it is essential to ram home the message that the claim will depend on satisfying the exact policy conditions and to advise policyholders to study these at outset and seek clarification on any points they do not understand.
Particular care should be taken to bring definition issues to the attention of clients taking CIC as part of a mortgage package. Few times are more stressful than when buying a home and issues seemingly not central to the house purchase itself tend not to receive the attention they deserve.
Tony Boorman, principal ombudsman for insurance, says: “A lot of complaints we see now relate to mortgages. It’s [CI] often an add-on sale and there is a concern that the adviser who has sold the mortgage product is adding it on without much explanation.
“Disputed critical illness claims are a genuinely difficult issue. People might think they know something about the major illnesses and are unlikely to fully take in detailed definitions. No-one ever thinks they are going to have one of these conditions at the margin and if they do they obviously feel aggrieved if it’s ruled out by the small print after their doctor has described it as cancer or a heart attack.”
Intermediaries can also play a major part in preventing non-disclosure. They should stress that if in doubt it is better to give too much rather than too little information and warn that insurers will examine medical records at the claims stage.
Age old issue Non-disclosure is an issue that increases with age. A survey into 10,000 lives by Swiss Re Life & Health in 1999 found it to be a problem with only 3% of risks aged under 30 but by the age of 60 the proportion had risen to 20%.
Jerry Brown, head of underwriting and claims at Swiss Re Life & Health, says: “When people get older they are less happy to talk about their health and have more reason to lie. “There tends to be slightly more non-disclosure around multiple sclerosis and cardiovascular problems than for cancer, but there are good reasons for this because most people with cancer don’t realise they’ve got it.”
Nevertheless not all the blame can be laid at the door of those who advise at the point of sale. Insurers can do more to prevent disputed claims by paying greater attention to application forms and product literature.
Clients cannot be expected to second guess underwriters, so greater effort should be made to avoid ambiguous questions. Application forms should also warn clearly about the consequences of non-disclosure, ideally on every page.
There seems no way of avoiding highly technical definitions in product literature because without them insurers would be left legally exposed. But insurers could work harder at providing plain English guides to support these definitions.
There is a limit to the extent of detail likely to fall within the attention span of the average policyholder, or indeed intermediary. But “back to basics” policies providing lengthy definitions for only a small number of core conditions could represent the way forward. z