Issues about income protection and critical illness insurance only accounted for around 6 per cent of the new complaints the Financial Ombudsman Service (Fos) received in 2016/17. But with the number of complaints for these two products increasing by 10.8 per cent in the last year, understanding the nature of these grievances could help the industry to improve consumer confidence.
According to its annual review, the Fos took on 849 new complaints about critical illness insurance in the financial year 1 April 2016 to 31 March 2017. This represents a 14 per cent increase on the previous year. On the positive side, it upheld 18 per cent of these, compared with 21 per cent in the previous year.
More income protection complaints were received, with 1,085 taken on in 2016/17 – a 9 per cent increase on 2015/16. Again though, the percentage that were upheld fell slightly from 29 per cent to 26 per cent.
Even thought the vast majority of complaints are not upheld, Ian Sawyer, managing director of Assured Futures, says the industry should take them seriously.
Mr Sawyer explains: “Consumers have an ever-growing awareness of their entitlement to complain and challenge. This is not a bad thing as it forces industries to improve communication and clarity.”
Critical analysis
The majority of critical illness insurance complaints arise when a claim is declined. In some instances this is because, although the policyholder has been unwell, the condition is not covered on the policy or their illness was not severe enough. Similarly, it might be declined as a result of the subjectivity of the medical evidence provided.
Non-disclosure and misrepresentation can also be common factors in complaints. Consumers can be unhappy where an insurer had cancelled a policy or paid a lower sum assured due to issues around the information they supplied at application.
These types of complaint are varied, and include claims being rejected because the policyholder failed to inform it of a health issue, a visit to the GP or, in the case of joint policies, because one of them failed to answer the questions correctly.
Mr Sawyer says the growing complexity of critical illness cover is partly to blame. “It is no longer a product designed to cover genuine dreaded diseases. Instead, it has become a varying selection of products, all called the same thing, but paying out differently upon different definitions and at different times. It is no surprise that consumers are more confused.”
As an example, one of the complaints not upheld in 2016 involved a policyholder, Ms L, who was unhappy that Scottish Widows had declined a claim on the grounds of non-disclosure.
Although she argued that she had supplied her full medical history and the insurer had the opportunity to seek her medical records, the Fos defended Scottish Widows’ decision, stating that she had failed to tell them of a cancer she had as a child, which, if it had been disclosed during the application stage, would have meant she would not have been offered cover at all.
Income protection probe
Complaints received about income protection tend to fall into four categories. As well as non-disclosure at application stage, complaints arise due to the assessment of the claim, the level of benefit payable and the suitability of the product. In particular, there can be issues at the claims stage around definitions of disability and activities of daily living (ADLs).
This does not surprise Alan Lakey, director at CIExpert, who says: “ADLs are not consumer-friendly and can make it really difficult to claim. When I have researched this in the past, I found one insurer had been able to reject all of the 13 of the claims it had on ADLs.”
As an example of the type of confusion that can arise at claim, take the Fos case of Mr M, who claimed for back pain on his group income protection policy. Although he argued it was linked to the cancer claim he had successfully made the previous year, Unum rejected it as it did not prevent him from working.
The Fos found in Unum’s favour, stating that although the pain was causing significant restriction to his daily activities, he could still perform the duties associated with his occupation.
Protection faults
While the majority of protection claims are not upheld, examining those where the Fos finds in the consumer’s favour can highlight areas that need addressing.
Mr Lakey explains: “Upheld claims often involve someone complaining they were forced to take out cover as a condition of a mortgage, or where someone has taken out a level-term policy to cover a mortgage rather than decreasing term.”
As an example, one case involved a woman, Miss F, who complained that Barclays Bank had mis-sold her a life and critical illness policy to cover her mortgage. She said she had been misled into believing it was a condition of the mortgage, but as she was single and had no dependants when she took out the policy, she had no need for the life cover.
The Fos found in her favour, ruling that life cover was unnecessary and she should have been offered a standalone critical illness policy. As this was not available anymore, it ordered Barclays to return the excess she had paid – and would pay going forward – plus £200 compensation.
While consumer protection is important, Mr Lakey adds that advisers need to be aware that Fos guidance does not always deliver the most logical outcome for consumers. As an example, he points to a consumer with an older style of critical illness product.
“If an adviser recommends they keep this because it has more generous cover for the majority of conditions, they must be careful they explain and highlight in the suitability letter where there are any less generous areas of cover. Without this, they could find a complaint being upheld against them.”
Consumer confusion
Whether complaints are upheld or not, the Fos’s annual review certainly highlights a need to help consumers understand the protection they take out and, in particular, the conditions attached to claims.
Already the industry is taking a number of positive steps. As well as awareness campaigns such as Seven Families, insurers are also seeking to make their claims statistics more meaningful. A good example of this is Aviva’s Individual Protection Claims report, which goes into more detail about why claims were declined.
Annual statements can also help to increase consumer awareness of their cover. These outline the level of cover they have in place, the plan’s term and end date, and monthly premium information.
Unfortunately, while these are commonplace for investments and pensions, only a handful of providers produce them for protection products. Among those that do is Zurich, which has sent statements out since 2007, with more than 700,000 policyholders receiving them each year.
As well as the standard policy information outlined above, its statements include details of additional plan benefits such as children’s critical illness benefit, which is often overlooked, but provides up to £25,000 of cover; and information about any trust arrangements.
Peter Hamilton, head of strategic partnerships at Zurich, adds: “These remind customers of the value of their cover, but more importantly encourage them to check it still meets their needs.”
While Zurich sees the value of providing these statements, Mr Hamilton says there is plenty of resistance, with critics arguing that rather than underlining the value of the policy, it simply serves to remind the policyholder they are paying for cover, increasing the likelihood of it being cancelled.
He rejects this criticism, and argues: “Many people buy cover, file their policy away and forget about its value and extra benefits. Annual statements can provide a positive reminder of the support available to customers should they need to claim.”
Whether or not other insurers decide to adopt annual statements, or introduce their own means of raising consumer awareness, with the Fos’s annual review highlighting the confusion that exists around protection, more definitely needs to be done.
