So what procedures does the claimant have to follow to make a claim? It is not like a motor or household claim – or even a private medical claim. With personal lines, a simple telephone call to a call centre is enough to start the ball rolling. Details are taken down over the phone, and the customer is sent a written confirmation to sign.
By contrast, critical illness is treated the same as life and pensions. Here, things are a bit more formal. When a claim event occurs, the first step is for the policyholder, or a family member, to ring for a claim form. This may not be easy for someone who has just had a stroke. They may be suffering from loss of speech.
So it is essential for anyone with CI cover to let their family know about it. Brokers and insurers should encourage customers to keep the telephone helpline number handy. All too often the documentation is hidden in a box file under the stairs.
The claim form itself is a simple enough document. Signing it gives permission for the insurer to obtain medical evidence in accordance with the Medical Records Act. The insurer then asks for a private medical attendant’s report, usually from the claimant’s GP. How long this takes depends on the GP’s list of priorities. A consultant physician’s report is not usually needed.
If there is any doubt, the policyholder may also have to undergo an examination by a specialist of the insurer’s choice.
As soon as confirmation is received from the medical staff, the claim can proceed. Claims staff still have to check that premiums have been paid, and no exclusions apply. They also have to make sure that the claim event meets the policy definition. For example, only cancer involving the uncontrolled spread of malignant cells qualifies. Likewise, a heart attack has to be evidenced by electrocardiograph changes and elevated cardiac enzymes. But these are clear cut distinctions as far as the medical profession is concerned.
Over 80% of all critical illness covers are sold as riders to life policies. As there is a death benefit under the policy, it is simply accelerated if a CI event occurs. Claimants should therefore get their payout within four weeks of the insurer getting the PMA report back from the GP.
This is not the case with most standalone CI contracts. Here, the companies make their customers wait, just in case they die soon after surgery or from a stroke. The length of this waiting period is somewhat arbitrary. With the Equitable it is 30 days, with Allied Dunbar 28, with Nationwide 15 and with Swiss Life 14 days. Albany Life and a number of others shell out straight away.
The reason, say the delaying companies, is that stand-alone contracts are not life policies. A judgment as to whether death occurred as a result of a critical illness would be subjective, they maintain. Did their client have a heart attack causing him to fall under a bus, or was it just a traffic accident?
Mortality statistics show that more people die from heart attacks than cancer. The same pattern might be expected with critical illness claims. In fact, the reverse is the case. This has got the insurers worried. They know that cancer is more self-diagnosable than the sudden onset of a heart attack. It can lead to their favourite nightmare, “selection against the office”.
This means only those who suspect something is wrong will insure. Someone who feels a lump that wasn’t there a week ago will get cover first, and consult a GP second. People are notorious for delaying before seeking advice, whether they have cover or not. One in three lung cancer victims ignores the symptoms for four months before going to the doctor. By then they maybe coughing blood.
As a result, CI insurers are finding that over half of all claims are for cancer. Clerical Medical was at one point reporting 70%. As with all life and health policies, proposers are obliged to reveal their medical history. Claims can be rejected for non-disclosure. But Norwich Union still paid out £3,000 to a greengrocer who had cancer of the tongue – even though his policy had only been in force a month.
A handful of insurers are not so trusting. BUPA will not pay out for cancer diagnosed within 90 days of cover being effected. Nor will Virgin Direct or Lincoln. This applies to any condition or operation resulting even partly from cancer.
Besides the six core conditions, CI contracts pay out for a further 20 or so frightening diseases.
With some of these, such as loss of limbs, there is no problem over diagnosis. The claim should be paid as quickly as for the core conditions. But for degenerative conditions, the insurers often want certainty that the condition is permanent. So they insist on a six-month waiting period before they stump up. After unequivocal diagnosis, that is.
This results in the policyholder enduring months of uncertainty before knowing what the trouble is. Then follows six months without knowing if they have a valid claim. During this time the symptoms must persist continuously. Or they must have existed in the past and at least one relapse must have occurred.
Some life offices, for example Albany Life and Scottish Widows, pay up immediately.
Even one of the companies with a 6month delay admitted reservations. “Any condition with a deferred period potentially causes difficulties,” said a spokesman who insisted on remaining anonymous.
Similar deferred periods apply to total permanent disablement (TPD). Also loss of speech, loss of hearing, paralysis, Parkinson’s disease and Alzheimer’s. Indeed, many companies make the TPD victim suffer for 12 months before accepting a claim. MS now accounts for 7% and TPD another 7% of all critical illness claims.
TPD has been sold as a catch-all which will produce a valid claim if none of the specified conditions apply. But this is not always the case. It depends on whether the policy wording stipulates unfitness to carry out own occupation, any occupation to which the policyholder is suited, or any occupation whatsoever.
The average age of claimants is only 40. Their policies have been in force for a duration averaging only 21 months. Abbey Life has paid out on 1,461 cases, about a quarter of all claims in the entire industry. Allied Dunbar has settled over 1,100. One of these, on a keyman policy, broke the £1 million mark.
Of the smaller companies, Skandia has paid 159 claims. The largest was £605,000 to a finance director with cancer. Sadly, nine were claims for children, aged between one and 14. Children’s cover is a common plan feature, with nearly all the resultant claims being for cancer. Among teenagers, bacterial meningitis is also emerging as a cause of claim.
Although all CI policies exclude AIDS as a matter of course, this has not prevented one AIDS-related claim being paid. Two years ago Norwich Union paid £45,000 to a 37-year-old company director. The triggering condition was permanent total disablement. But AIDS was the underlying cause. NU explains that for PTD and terminal illness, the reason behind the claim does not matter. Just so long as the condition is authenticated.
CI benefit is now added to nearly all mortgage-related life policies. It is also becoming a standard feature on other forms of life cover. This is going to make an enormous difference to policyholders. As more of them survive previously incurable illnesses, there are going to be fewer death claims. But critical illness claims are set to soar.
For those who make a good recovery, it will be like winning the lottery. At last, the insurers have devised a policy where you can have your cake and eat it.