The reaction changes where death is a result of a condition linked to smoking. If it is caused by a heart attack, 29 per cent believe the claim should be paid, with 21 per cent saying it should be declined. But even if they died from lung cancer, 18 per cent would still be in favour of a full payout.
Ms Miller believes this could be due to the contract mentality. “Consumers believe that if they have been through the application process and taken out cover, they have a right to a payout if they make a claim,” she says.
“Insurers need to be clear about the ramifications of non-disclosure at the outset, but this does feed into consumer mistrust.”
Fairer settlements
As well as ensuring greater clarity at application, a number of other options could help to address this issue.
Proportionate payouts can be considered where non-disclosure has been uncovered. These work in a similar way to the application of the average clause on general insurance. As an example, were someone’s premium to be doubled if they disclosed they were a smoker, the claim payout would be reduced by 50 per cent.
Stephen Crosbie, protection director at Aegon, says this can work in some situations. “We will pay a proportionate benefit in some instances of non-disclosure, but it is not something we would publicise as we do not want to encourage people to do this.”
There are obvious pitfalls to adopting this approach more broadly. As well as encouraging people to withhold details of any health problems to secure a lower premium, it also leaves people facing uncertainty around the size of a potential settlement.
A non-contestability period has also been suggested, most famously by the Law Commission back in 2007. In this scenario, once a policy had been held for a number of years (typically two or five), all claims would be paid unless the policyholder had made deliberate or reckless mistakes.
This approach does have support and is standard practice in other markets such as the US, but it is not an option favoured by Roy McLoughlin, associate director at Cavendish Ware. “It would be a mess, pushing up premiums and creating confusion around when claims can be declined,” he explains.
“It is much better to be upfront about non-disclosure when someone is taking out cover. If you explain it properly, they understand.”
Value statement
Another barrier is the perceived value of protection products. More than half of those surveyed said they did not like paying for a product they might never need, with 53 per cent saying they preferred to top up their savings than take out protection.
