ProtectionDec 22 2014

Friends Life warns of claims data consequences

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Protection providers need to be wary of the unintended consequences of reporting claims statistics, according to Friends Life’s head of underwriting Chris Pollard.

The industry is about to enter into the claims reporting annual cycle, where protection insurance providers take it in turns to put out their latest statistics. The overwhelming majority of customers who make a claim receive payment, so it seems logical that it can only be positive to make these percentages public.

However, Mr Pollard told FTAdviser that despite this yearly activity the public still believe the number of claims paid is far lower than the reality.

“Purely looking at claim figures doesn’t tell the full story of what has really happened. If one company pays 99 per cent of life assurance claims and another pays 95 per cent, what is to be gained from ordering them based on the percentage?

“Does it mean that one company will deliver a better outcome for the insured’s loved ones? Not necessarily.

“Now we are in this position it’s unlikely the publication of claim statistics is going to stop. But what we need to work on, as a whole industry, is trying to ensure they are not used to beat each other over the head.

“What, in my opinion, is not helpful is if these outcomes are presented in a format that implies one result is automatically better than another, or worse still, that they are actually used within recommendation modelling.”

Its own claims statistics for last year revealed Friends Life paid out 99 per cent of claims against its range of life insurance policies, with payout rates of 91 per cent for critical illness claims and 86 per cent for income protection.

This compares to ABI average industry payout rates in 2013, compiled from provider submissions, of 99.9 per cent on whole of life policies, 92 per cent on critical illness and 91 per cent on income protection.

Mr Pollard explained that what it may be telling you is that one provider applies exclusions, such as for suicide, whereas the other might not, or that a policy may have expired before the death occurred, or that it might have lapsed but a claim was still submitted.

“These are the kind of variables that can make a purely numerical comparison too simplistic, and we have not yet begun to consider the more complicated products, such as critical illness and income protection.”

He argued that UK life insurance providers are unique within the global insurance market in self reporting claim success rates at a provider level.

“Now we are in this position it’s unlikely the publication of claim statistics is going to stop. But what we need to work on, as a whole industry, is trying to ensure they are not used to beat each other over the head.

“What, in my opinion, is not helpful is if these outcomes are presented in a format that implies one result is automatically better than another, or worse still, that they are actually used within recommendation modelling.”

Mr Pollard concluded that greater transparency is the right way forward, but it needs to be meaningful. “If the problem we were seeking to solve was to change the public perception of how many claims are paid, I’m not sure if we know whether or not we have succeeded.

“We must be mindful that a simplistic reliance on a self reported percentage could well result in unintended negative consequences. Something to think about as this year’s claims outcomes are shared in early 2015.”

peter.walker@ft.com