The cover conundrum

Mas has joined forces with the ABI in a PR campaign to get the British public to protect their financial interests.

Of course, this is a difficult sell, because not only would people prefer to spend their hard-earned cash on a nice family holiday in the sun rather than salting it away ‘just in case’ something goes wrong in the future, there is also a general mistrust of insurers’ motivation to pay out when the time comes.

The latest figures from the ABI show that in 2014, 128,500 customers were paid around £3.44bn through protection insurance, averaging out at £9.4m a day for more than 350 people or families – the highest level yet seen. Is it fair that the public assumes insurers duck their responsibilities when they have to pay out? Well, actually no, as the figures suggest the opposite.

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The ABI trumpets that the whole of life insurance payouts reach 99.98 per cent – frankly, though, that is little surprise. After all, it is pretty incontrovertible – death is a certainty in life, and for the most part the reason why you have left this mortal coil is usually quite easily understood. The average payout seems pretty low, though, at just £7,400. Term assurance payouts reached 98.7 per cent in 2014, and the average payout was a much heftier £60,900.

However, the picture is more patchy when it comes to other types of protection insurance payouts. For example, the average payout for income protection policies stood at just under £10,000 last year, paying out for an average of 204 weeks – or just under four years – amounting to 92.9 per cent of claims.

But the real kicker – and the one that has probably led to at least some of the public’s mistrust when it comes to protection policy payouts – comes with the total permanent disability claims, which averaged £73,200 – but only reached 64.1 per cent of claims paid out in 2014. That is not even two-thirds of the claims that were made, although the payouts had risen from a mere 50 per cent of claims made in 2009.

Part of the reason for this lowly figure six years ago was the lack of a standard definition for TPD, which the ABI introduced in 2011 in the Critical Illness Statement of Best Practice. Apparently, this lack of clarity “led to claims being made that did not qualify”. Well, that might have been the case, but forgive my scepticism – I have a suspicion that at least some insurers were hiding behind this lack of clarity to avoid a big payout.

Let us face it, based on the figures it is clearly an expensive type of claim for an insurer, and when more than a third of claims made under these policies are still denied even now the definition is in place when just 707 claims were made in 2014 – yes, that few – it is easy to see why the public is reluctant to part with its cash for this insurance. This is a shame, because if someone is affected in this way, then having that money to help you will be a real blessing.