Clarity needed over stress and income protection claims

Additionally, advisers have seen insurers employ different approaches when processing a stress, depression or anxiety-related claim – all three common signs of a mental health condition. 

Advisers say this is causing confusion and that clarification is needed.

Alan Knowles, managing director of Cura Financial Services, and board member and former chair of the Protection Distributors Group, says: “I’ve been doing this job for 18 years and only heard about this [issue] a year ago.

“Insurers tend to send information saying that IP [policies typically] cover you for any condition that stops you from working. But all of a sudden, this is rearing its head.”

The PDG wants to gain a better understanding of how big an issue this is and what approach insurers are taking to these sorts of claims.

So the group will be speaking to insurers to get their stance, which Knowles says could lead to creating a guide for advisers or lobbying for better transparency from insurers.

Knowles adds: “Many insurers do pay out, but the fact we have heard a number of stories now over the past couple of years means it is an issue and needs to be addressed.

“If it is a case the policy does not cover stress-related claims, then the adviser needs to be told, and the documentation needs to be clear.”

My view is that if an insurer would not pay an IP claim due to stress then they should not be asking questions about stress in their application.Adam Higgs, FTRC

According to Adam Higgs, head of research – adviser services at FTRC, part of the confusion around stress and whether it is a claimable event on IP is that some insurers will ask in their underwriting questions if the client has suffered from stress. 

The reason for this, he says, is that stress can lead to more serious mental health issues, however it is a very difficult question for people to answer because everyone suffers from stress at one point or another; this is natural and unlikely to lead to anything more serious. 

Higgs adds: “Personally, my view is that if an insurer would not pay an IP claim due to stress then they should not be asking questions about stress in their application.

“When it comes to claims the general rule is that if the stress leading to the client being off work is caused by their employer or an aspect of their surroundings at work then it is unlikely to be paid unless there is also anxiety or depression diagnosed. The reason for this is that the client could change employer and theoretically the stress would diminish. 

“Where the stress is due to something completely outside of the employer or employment then insurers may be more willing to consider the claim. If the reason for absence also includes anxiety or depression or both, then the insurer should be paying the claim as these are medical conditions.”

Higgs says it is important for advisers and their clients to understand that stress on its own is not a medical condition, rather a physical response to a situation. 

He adds: “If you remove the person from the situation, then theoretically the stress should go away. If serious enough, stress can lead to anxiety or depression, which are medical conditions and would be covered by income protection plans.

“For a long time people have linked stress, anxiety and depression, and even now we hear people stating that IP will cover you if you have stress, anxiety or depression. In some cases even the business development managers from insurers will use this phrase.

"I would certainly encourage all insurers to make sure that all of their staff understand the difference between the three and their stance to claims when any of these are present. I would also love to see insurers doing more to help advisers and their clients understand what is and isn’t covered and highlight more of these types of nuances.”

Phil Deacon, head of claims at Guardian Financial Services, says if a claimant is unable to do the material and substantial duties of their own job due to illness or injury, then the insurer will be able to consider their claim. 

This includes illnesses where stress is a factor. Guardian will assess each claim on its own merits and base its decision on all the information available, Deacon says.

“However, it is important to point out that stress itself is not an illness,” Deacon notes. “We all have stress in some form, and it doesn’t necessarily mean that we are ill and can’t do our jobs. We’ll always seek to understand the full circumstances before making any decision.

“To put it simply, stress isn’t an illness, whereas anxiety and depression are. When it comes to a claim, having any of these doesn’t mean you can’t work. Each claim should be assessed on its own merits to understand what illness the claimant has, and how this prevents them from performing the material and substantial duties of their own job or occupation.”

Stress and work-related stress have indeed become major issues.

One in 4 people will experience a mental health condition in their lifetime.

According to the National Institute for Health and Care Excellence, 13.7mn working days are lost each year in the UK because of work-related stress, anxiety and depression.

A report by the Chartered Institute of Professional Development back in September also found that workplace absences had soared to their highest level in more than a decade.

The survey analysed trends in sickness absence and employee health and wellbeing among 918 organisations, representing 6.5mn employees.

As well as an overall increase in absence, it found stress to be a significant factor for both short and long-term absence, with more than 76 per cent of respondents reporting stress-related absence in their organisation in the past year.

Another area of clarification needed from insurers, according to Alan Lakey, founder of CI Expert, is when exclusions apply on a policy. How relevant is a prior mental health episode?

For example, if someone is making an IP application, how far back would the insurer consider a previous mental health event relevant to the policy? And is it different for stress, anxiety or depression?

For a condition as complex and hard to treat as stress, any standard wording is unlikely to solve the inherent problem faced by insurers and customers.Phil Jeynes, Reassured

Lakey adds: “At the point of claim, insurers ask different questions. Advisers don’t have specific guidance and we do [not have the full confidence to say the mental health claim will be successful].”

An IP policy is meant to pay out in monthly instalments should an individual no longer be able to work due to injury or illness (both physical and mental).

If they are living with a mental health condition or have experienced one in the past, this will typically be classed as a pre-existing condition and some providers may exclude this from their cover.

For example, at Guardian Financial Services Caroline Froude, head of underwriting strategy and development, says most applicants who disclose stress, anxiety or depression obtain standard rates for all cover. 

If the last episode is within three years, then an exclusion may apply to both total and permanent disability and IP insurance. If there have been suicide attempts or self-harm then an exclusion may apply.

Phil Jeynes, director of corporate strategy at Reassured, says while IP does not cover specific conditions and therefore could pay out for any medical reason a client cannot work, in practice insurers will always assess a claim on its merits. 

Jeynes adds: “Stress is very difficult to give a black and white definition and can be caused by myriad different factors. The likelihood is that if the client’s stress is being caused by their job – high targets, long hours, etc – their IP policy will not pay out, since they could perform their job albeit at a different company, for example. 

“If their stress is caused by an external factor such as a psychological illness, IP is very likely to pay.”

Jeynes says there is no hard and fast rule among insurers, but the reason for the mental illness and duration of any period of mental illness will be the key focus of underwriters.

If, for example, a client had an isolated period of poor mental health linked to a life event, such as bereavement, this is less likely to lead to an exclusion than, say, someone with a longer history of absences due to mental health problems.

He adds: “While guidance at a central level is helpful, for a condition as wide-ranging, complex and hard to treat as stress, any standard wording is unlikely to solve the inherent problem faced by insurers and customers when managing these types of claims.

“Insurers tend to be very helpful when outlining when their plans will and won’t pay out and most have excellent wording in their documentation and online help pages for brokers. It is always important to let clients know that any claim will be individually assessed so there’s no misconceptions.”

Mental-health-related individual IP claims are the second most expensive claim type at an average of £14,404 in 2023, according to figures from the Association of British Insurers.

The latest protection claims figures from the ABI also show that in 2022 86 per cent of claims for mental illness were paid. Individual IP claims rose by 9 per cent to 15,909, with mental illness accounting for 8 per cent of IP claims.

In the same year insurers paid 287,000 protection claims with a total value of £4.64bn – the proportion of claims 98.3 per cent.

Insurers do want to pay claims, but when you hear these sorts of stories it is still concerning. A big part of it is the transparency.Alan Knowles, Cura Financial Services

An ABI spokesperson says: “Different providers will have different criteria on policies, but stress is typically acknowledged as an exacerbating contributor to mental ill-health.

"Insurers use specific diagnostic criteria to determine whether a condition would trigger a claim, and this may vary from policy to policy. Our members regularly review their underwriting approach to mental health conditions to ensure they’re providing appropriate cover.

“The role of prevention is key in supporting and sustaining a healthy workforce, and by offering support services insurers can help people manage stress and prevent their mental health from deteriorating.”

FT Adviser understands some industry bodies are currently looking at guidance around stress claims. 

Deacon says any such guidance should be aimed at educating advisers on stress and what it is, but he also cautions that the industry needs to be “quite careful with anything that seeks to apply a standard approach on such claims, as it has the potential to be detrimental to claimants”.

Deacon highlights the NHS website on stress (Stress – Every Mind Matters) as a potential resource for advisers. 

Knowles adds: “Insurers do want to pay claims, but when you hear these sorts of stories it is still concerning. A big part of it is the transparency. Stress is not necessarily a claimable condition, but I’ve had years of insurers saying it would be."

Ima Jackson-Obot is deputy features editor of FTAdviser