STIP claims

With many consumers believing insurers will do anything to duck out of paying a claim, the news that the Association of British Insurers (ABI) will start collecting claims data for short term income protection (STIP) plans is a significant step forward. But, with concerns about the figures that will be disclosed, it could be the catalyst for a major overhaul of the market.

The decision to collect claims data (see Table) was made in a meeting held between STIP providers and the ABI in September. Although the details are yet to be finalised, the Association intends to carry out a trial run on claims made on both STIP and mortgage payment protection insurance products in 2014.

An ABI spokesperson said the trade association was keen to explore the potential to expand on the claims data that it already collects and publishes on protection insurance products. However, before it considered whether it was suitable for publication, it would need to ensure that it was able to collect thorough and high quality data.

Public reassurance

This move has been broadly welcomed by the protection industry. Emma Thomson, life office relations director at LifeSearch, says the principle of publishing claims statistics is sound because it gives considerable reassurance to customers and advisers. “Insurers do include their claims statistics on their adviser sales aids as well as on some of their consumer literature,” she says. “They are a key selling point as they do show that a high percentage of claims are paid.”

As well as providing reassurance to consumer and adviser alike, putting these statistics in the public domain has also helped to increase the number of claims that are paid. For example, according to ABI data, while 91.8 per cent of critical illness claims were paid in 2013, in 2005 this figure was only around 80 per cent.

The ABI’s reluctance to publish the first wave of STIP claims statistics it collects is also understandable. While publishing statistics on life assurance and critical illness was relatively straightforward, there was considerably more resistance when it came to income protection. In particular, insurers were concerned about inconsistencies in the figures because there was no standard way to produce them.

Eventually though, these grievances were dispelled when the ABI worked with the industry to develop definitions for paid and declined claims. These were used for the first time on the 2013 statistics, which were published earlier this year.

Apples and oranges

But while getting agreement on the type of data that should be collected was problematic for income protection, the STIP market presents an even greater challenge. In addition to the potential for insurers to use different methodologies when calculating their claims statistics, differences in product types could make comparisons difficult.

A variety of products sit under the STIP name including policies based on traditional long term income protection, accident sickness and unemployment (ASU) and payment protection insurance (PPI). Because of this, Mark Myers, chief executive of British Friendly, says it will be essential to ensure the industry compares like-for-like as much as possible. He explains: “There are grey areas around the definition of the products. While, for many, STIP refers to a proper income protection plan with limited payment period, for others it is accident and sickness cover. Publicising paid claims rates is important to help restore trust, but the data must be meaningful.”