Call for insurers to publish claims records

Income protection providers are being urged to follow the lead set by critical illness cover (CIC) insurers and open up their claims payout records to customer scrutiny.

Financial advisers hope that making this data widely available will boost consumer confidence in
the policies, also known as permanent health insurance.

Income protection (IP) is a long-term product designed to replace income if the policyholder becomes too ill to work due to “total disability”, such as multiple sclerosis but it also covers conditions such as depression and back and neck pain.

The policies can replace up to 75 per cent of the income that the policyholder was earning before their disability, after any state benefits or other insurance payouts have been deducted.

Whether a claim is successful will depend on the insurer’s assessment of the policyholder’s disability and its effect on their ability to work – either in their own occupation or another, areas often subject to dispute.

For the past two years, providers of critical illness policies, which had suffered from a poor claims record, have published their claims data. This has corresponded with a steady rise in the numbers of claims paid out and also a decline in the number turned down for non-disclosure (see table below).

Now advisers want all
IP providers to open their claims books, too, hoping
it will have the same
effect on consumer confidence.

“Those CIC providers whose payout rates have been poor have had to
buck up their ideas and improve,” said Matt Morris, senior policy adviser with LifeSearch, the specialist protection insurance independent financial advisers.

“The same would be true if everyone published income protection statistics and it would also mean there’s more transparency in the market. This is good for the consumer,” said Morris.

Currently, a handful of small friendly societies, including Pioneer, and larger insurers such as
LV=, Liverpool Victoria
and Aegon publish claims data.

However, the data cannot be directly compared between providers as there is no standardised method for its collection and presentation.

In 2008, Pioneer paid 98 per cent of its IP claims. LV= paid 91 per cent of
its claims, totalling £12m with an average annual
policyholder benefit of £14,000. Some 2.5 per
cent of claims were declined for non-disclosure and 6.5 per cent for not meeting
the policy definition, for example if a policyholder claimed that he or she
could not carry out their own job because of accident or sickness, but their doctor felt that they could.

Last year, Aegon paid
93 per cent of claims
with 7 per cent declined
due to non-disclosure. The total claims payout was £550,000 with an current average annual benefit of £9,800 per policy. No claims were declined due to not meeting the policy definition.

The Association of British Insurers (ABI) says it is looking very closely at publishing industry-wide IP claims data on a yearly basis and said it intended “to start gathering the data in the near future”.

“The industry is keen to publish claims statistics
for income protection insurance so they can be open and transparent and so that consumers can have confidence in this product,” said Nick Kirwan, the ABI’s assistant director of health and protection.

“[However] the figures aren’t comparable between one company and another, so we want to gather and publish this information centrally.”

The Financial Ombudsman Service (FOS) says the IP disputes it most often hears involve policyholders who are unhappy with the amount of benefit they have received following a successful claim.

Sometimes, the policyholder has misunderstood how the policy works but insurers have also miscalculated benefits, the
FOS said.

However, the FOS added that the introduction in 2008 of the ABI’s guidance on non-disclosure in claims relating to long-term protection policies had been beneficial for policyholders.

“This has resulted in fewer cases about the non-disclosure of a consumer’s medical history now being referred to us,” said Paul Bicknell, a spokesman for the FOS.

“And in those cases we do see, we are now agreeing more often than before that the insurer acted fairly,” he added.