In 2016 some 97.3 per cent of all protection claims were paid, according to figures from the Association of British Insurers. But with a survey conducted by Aegon earlier this year finding that consumers believe insurers settle far fewer claims, the industry must do more to gain their trust.
One option that is regularly mooted is a compulsory non-contestability period. This would ensure that once a policy had been in force for a set time period, an insurer would not be able to decline a claim for non-disclosure. This would reduce declined claims stories in the press and give consumers, and advisers, greater confidence to take out cover.
This approach was first put forward by the Law Commission in 2007, when it proposed a five-year non-contestability period for life insurance policies. Hence, once a policy was at least five years old, insurers would be able to avoid claims where the policyholder had made deliberate or reckless mistakes, but would have to pay all other claims.
Johnny Timpson, financial protection specialist at Scottish Widows, backs the commission’s recommendation. “It was a really good idea, especially given the maturity of the life insurance market,” he says.
“Insurers were beginning to embrace more predictive underwriting, giving them better insight into customer risk, so it would have been an ideal time to embrace a non-contestability period.”
Although the proposal was never adopted, it received a good level of support. Of the 61 responses from life companies and reinsurers, 34 were in favour of a five-year period, with a further three pushing for it to be shortened to two years as is the case in some other countries, including the US.
For and against
Given this response, the idea was revisited in a Protection Review poll earlier this year. Again, it found that the market was fairly evenly split between those wanting this feature to be introduced and those against it.
The most popular single answer, with 43 per cent of the vote, was that it is not necessary to introduce a compulsory non-contestability period. But this left 57 per cent in favour, with 32 per cent opting for a five-year period.
Ten years was the second most popular time period, supported by 15 per cent, followed by a two-year period chosen by 10 per cent.
Kevin Carr, chief executive of Protection Review, is not surprised by this result. “There is an interesting trade-off when it comes to non-contestability,” he says.
“If people knew insurers could not decline claims after a certain period, it could boost consumer and adviser confidence. However, this would come at a price, as it could result in an increase in upfront underwriting and push up the cost of cover.”
Increasing consumer confidence is a key objective for the protection industry. It has published claims statistics for the past 10 years to highlight the fact that the vast majority are paid. In addition, insurers have overhauled their application processes to further reduce the number of claims that are declined. But Mr Timpson believes this is not enough. “Over the past decade the industry has been publishing these statistics and protection has also got cheaper, but sales have flatlined,” he says.