Have you heard about the doctor’s wife who discovered a suspicious lump on her breast a week after taking out a critical illness (CI) policy? No shortage of such anecdotes do the rounds on the industry lunch circuit when insurers are happy to let their hair down and talk off the record about suspicious claims they had no option but to pay.
CI, because there is no initial exclusion period, can clearly be attractive to those intending to make an imminent claim but who have nothing on their medical records to prove they are guilty of non-disclosure.
The problem is greatest with cancer, which accounts for over half of all CI claims, despite the fact that statistics for the population as a whole show that cardiovascular problems present a greater health hazard.
Part of the imbalance results from the fact that cancer has fewer early warning signals and is therefore more difficult to underwrite out. But this cannot explain away a disproportionately high number of cancer claims made during the first six months of CI policies.
In addition to those with close connections to the medical profession, principal abusers of the system include those who go for check-ups in private clinics before taking out a CI policy so that there is nothing on their GP’s records and those who detect a suspicious lump but take out a policy before they have it checked out.
Even the latter category are guilty of non-disclosure because policyholders must have no reason to suppose there is anything wrong with them before coming on cover. They are obliged to inform their insurer of suspicions that arise even between the time of making their application and cover commencing.
Of course, many non-disclosures are picked up at the claims stage. The policyholder’s GP may have noted an unusually strong urgency to see a specialist. Or patients, once they have been referred by their GP, often tell specialists the full story because they realise that failure to do so could reduce their chances of survival. And they may therefore contradict the information they originally gave about when symptoms first appeared or their family medical history.
Nevertheless, a hard core of cheats slip through the net and, while many insurers dismiss this as a minor problem that is already priced into their rating structures, some are still advocating the introduction of an initial cancer exclusion.
According to CI expert John Joseph, director of London-based independent financial adviser (IFA) John Joseph Financial Services, industry-wide figures show an unusually high proportion of cancer claims within the first few months.
He says: “I wouldn’t have a problem with a three month cancer exclusion. The industry should get together and consider doing something like this. The problem is that no insurer wants to be the first one to do this as it would be perceived as having weak cover.”
Bupa demonstrated this problem when it tried to introduce a six month cancer exclusion on its CI product in 1994 – but had to remove it again four years later. It acknowledges that the innovation “was not that well received by intermediaries”.
Even if an industry-wide initial cancer exclusion was achieved it would inevitably attract similar criticism to that being directed at private medical insurers who offer moratoria policies. Insurers would be accused of providing policyholders with an incentive to delay seeking medical advice where delays of a few months could prove fatal.
Swiss Re Life & Health health and welfare strategy manager Alan Tyler feels that a three month exclusion period would have probably been a good idea at the outset, but that it is now too late to introduce one. He emphasises, however, that improved screening and diagnostic techniques are catching illnesses much earlier than they used to and that, because this is increasing claims, there is a clear case for adjusting policy wordings.
He says: “The market has two options. It can continue to pay out and therefore put prices up or it can tighten definitions, particularly those for cancer, so that they exclude conditions picked up at very early stages. Insurers could in fact do both and offer a choice of either a low-cost or more comprehensive policy.”
On the other hand, Alan Stoneman, from the technical executive claims department at GE Frankona Re, does not regard non-disclosure as a serious enough problem to warrant any kind of rewriting of the CI product.
He says: “It would be wrong to suggest there is a big issue needing remedial action. We are quite relaxed about CI but accept that we are always looking for the odd fraud and will act when we come across it.
“Remember that we are talking about a relatively new product, for which any real volume sales date back only to 1987. In the early years every claim is inevitably an early claim but the problem is disappearing as the CI portfolio matures and becomes less volatile.”
When it comes to suspicious total permanent disability (TPD) claims, some, but by no means all, CI insurers make use of private investigators. Insurers themselves are notably reluctant to comment on this sensitive subject but private investigation agency James Harris Investigations, based in Didcot in Oxfordshire, is prepared to spill a few beans.
The agency, most of whose staff are ex-CID, investigates TPD claims for a range of leading insurers. It charges them strictly on a time and mileage basis and for the average case will be used for no more than four or five days in total, spread over a number of weeks. It emphasises, however, that it is not only used when large sums insured are involved. It has sometimes been asked to investigate claims as small as £20,000, more for moral than financial reasons.
The agency points out also that the law requires it to be satisfied that it has reasonable grounds for initiating investigations and that it would never take on a case simply because it was a big claim. It is also not allowed to use bugging devices. Most activity therefore centres around trying to produce video evidence showing that claimants’ limitations are not genuine.
James Harris Investigations managing director James Harris estimates that his agency invalidates over half of all TPD claims it is asked to investigate, a significantly lower success rate than with income protection – for which it manages to invalidate around 80 per cent of claims.
He says: “In the 20 years I’ve been investigating claims for insurance companies it has never once been suggested that I should do anything to manufacture evidence of fraudulent claims in any way. Every insurer we deal with is keen to pay valid claims but is trying to safeguard against fraud to keep premiums down. They are expected to treat claimants with utmost good faith and it therefore seems bizarre that they should be criticised for acting against clients who they suspect are not doing the same thing.
“In my experience, seemingly plausible claimants are prepared to go to any length to make fraudulent claims but once they are confronted with evidence on video they tend to back down without a murmur.”