Something to shout about

As recently as 2005, critical illness insurers, in particular, were being lambasted in the national media for only paying out 80 per cent of claims. But their payout average has now risen to 92 per cent. The average for income protection is now 92.9 per cent, for term life 98.7 per cent and for whole-of-life 99.98 per cent.

Alan Lakey, founder of CIExpert, said: “Things have improved massively over the past 11 years and they had to because the situation was unsustainable. The most important factor has been the industry wanting to clean up its act and realising it was untenable for it to continue as it was doing.”

Payout rates on life cover have rarely been an issue, with most declinatures relating to 12-month suicide exclusions or blatant non-disclosure, but on critical illness cover and income protection they most definitely have been an issue.

Great credit must therefore go to specialist intermediary LifeSearch for originally instigating the trend for critical illness insurers to reveal their claims-paying statistics. Once they started doing this it put pressure on income protection insurers to follow suit, so now all leading providers of both products declare at least annual payout rates.

There is undoubtedly some link between this greater transparency and the improvement in payout ratios, primarily because insurers who reveal that poor figures are likely to come under greater scrutiny.

Mark Myers, chief executive of British Friendly, said: “If you have a poor ratio it suggests you don’t care about your customers, so you should be working out why the figures are poor and ironing out the problems.”

Some intermediaries also set great store by their ability to provide clients with statistical proof. James Caplan, director at London-based mortgage and protection advisers First Financial, said: “I do get some clients asking me if it’s true that protection insurers try and wriggle out of paying claims, but I counter this by showing them the claims stats from the major players.”

However, others beg to differ. Henrietta Oxlade, protection expert at London-based IFA Radcliffe & Newlands, said: “I virtually never get asked about claims history and I think that, because the insurers we use are household names, clients assume the plan will do what it said it does. I always ram home the importance of disclosing everything, however seemingly trivial, and explain that the policy will pay out if you do this.”

But Ms Oxlade does acknowledge that the claims statistics are valuable in helping her to select the right insurers for her clients because if an insurer had a bad claims history she would not recommend it.

Most commentators, though, acknowledge that the practice of declaring claims statistics is only one of a range of factors that have contributed towards the improved payout ratios. Others include the introduction of the ABI’s code of practice on non-disclosure in 2008, the introduction of partial payment facilities for certain conditions not listed on critical illness policies, and a trend towards shorter-term income protection – making it less expensive for insurers to give the claimant the benefit of the doubt.

Widespread use of tele-underwriting and improvements to the clarity of application forms have also helped to reduce the problem of non-disclosure, and enhanced policy wordings have reduced the chances of leaving policyholders disappointed that they did not meet definitions.

Emma Thomson, life office relationship director at LifeSearch, said: “In the past 12 months, a lot of critical illness insurers have improved their definition for heart attack by removing specific troponin levels as claims criteria, and the definition of TPD [total permanent disability] is a lot clearer. Also, one of the reasons that income protection claims statistics have been improving is that LV=, which is the clear market leader for the product, has moved far more customers to ‘own-occupation’ definitions.”

There has also generally been a recognition on the part of insurers of the importance of making the whole claims process much more consumer friendly. For example, a recent programme of changes by Zurich has cut the average time it takes to pay out a critical illness claim from 50 to 27 days.

Ian McKenna, managing director of F&TRC, said: “The processes for declining claims within insurers have become much more robust, and it now has to be done at a senior level whereas it used to just involve middle managers. Several insurers are putting claims managers on training courses to address issues like empathy, and a number of insurers include bereavement counselling as part of a life policy.”

It remains debatable exactly how much further payout rates for income protection and critical illness cover can continue to improve because applications may always include a small fraudulent element, and consumers are always likely to struggle to understand medical terminology. Is it, for example, reasonable to expect them to know the difference between angina and a heart attack?

Robert Morrison, chief protection underwriter at Aviva, said: “I would always much rather consumers make claims if they are not sure, as we want to pay as many valid claims as we can, and sometimes we may be able to pay them under a different condition to the one they claimed. For example, we have paid someone with degenerative blindness under TPD when they didn’t meet the blindness condition.”

Nevertheless, it is generally agreed that the protection industry still has a mountain to climb in actually getting the message over to the consumer that it pays most claims. Research carried out this April by Aegon found that 77 per cent of customers were unaware that insurers published claims statistics.

Independent protection consultant Roger Edwards said, “The bottom line is that the public isn’t hearing about the progress we are making with claims because the national media isn’t interested in good news. Various recent surveys have suggested that the public believes that insurers pay out between a third and half of all valid claims.”

Debbie Kennedy, head of protection proposition at Royal London Intermediaries, said: “One of the issues we have is that even if people do see the statistics they don’t necessarily believe them. They tend to think that because they’ve heard a motor or travel insurer has been mean, then protection insurers will be as well.”

The crucial next stage for protection insurers is to stop hiding their light under a bushel and start getting their messages over in the national media. IFAs can undoubtedly help in this respect by encouraging clients who have had claims to act as case studies.

Edmund Tirbutt is a freelance journalist

Key points

In 2014, 97.7 per cent of all protection claims were paid out.

The practice of declaring claims statistics is only one of a range of factors that have contributed towards improved payout ratios.

The protection industry still has a mountain to climb in actually getting the message over to the consumer that it does pay most claims.