Insurers release data on payout rates

Insurers have for the first time released official data on their payout rates for critical illness cover (CIC) and life insurance policies, showing that, on average, more than 90 per cent of claims are paid.

The data from the Association of British Insurers (ABI) marks the first time industry-wide statistics on claims for these products have been formally compiled. The products have suffered from a poor reputation in recent years due to controversial disputes over claims rejections, particularly for critical illness.

The ABI said its members – who account for about 90 per cent of the market – received just over 45,000 claims on CIC policies in 2008 with 3,100, or 7 per cent, of those rejected.

About £184m worth of claims were turned down, or just under 10 per cent of the total value of all claims received for both life policies and CIC.

“It is pleasing to see just how much is being paid out for these products and how often that is happening,” said Nick Kirwan at the ABI. But he added that insurers were still not “complacent” about reducing the number of declined claims.

The ABI now intends to publish claims data every year. However, consumer groups said a breakdown on individual company claims rates would have been more useful to consumers.

A decline rate of nearly 12 per cent for critical illness, which pays a cash lump sum upon the diagnosis of a range of conditions, was also said to be too high.

“CIC policies are individually underwritten, so the payout rate should be better,” said Vera Cottrell of Which?, the consumer group. “Those making claims are vulnerable when they don’t get that payout.”

The figures were released as proposals were set out for a new law that would stop insurers turning down a claim if a policyholder did not disclose information insurers had never asked for.

A draft bill, published this week, suggested replacing the consumer’s duty of disclosure with a duty to take reasonable care to answer insurers’ questions fully and accurately. Customers meeting this duty should expect to have their claims paid.

“Although the majority of insurers already follow industry best practice,
our recommendations will require the minority to
follow suit,” said Professor Hector MacQueen of the Scottish Law Commission.