Consumer duty  

Advisers must tell clients about life insurance pay out process sooner

Advisers must tell clients about life insurance pay out process sooner
Policyholders are "often unaware" that an efficient pay out is dependent on how the product is set up [Miles Willis/Bloomberg]

Life insurers and advisers need to be clearer with clients on how their policies pay out after their death in order to avoid it becoming unnecessarily hard and slow for loved ones to access the money.

In a report published by Swiss Re yesterday (February 9), the reinsurer said "as a minimum" insurers and advisers should look to improve communications with clients to enable them to make effective decisions, especially when it comes to setting up their life insurance.

Good industry practice as laid out by the Association of British Insurers some 17 years ago says providers should aim to pay out on policies within 10 working days of receiving a claims form.

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But in reality, many families of life insurance policyholders across the UK are waiting far longer than that - in many cases months - for payouts.

With the Financial Conduct Authority's consumer duty set to land later this year, providers and advisers will need to actively avoid foreseeable harm to clients.

One way they will need to do this is by improving clients' understandings of insurance products, according to Swiss Re.

"It requires firms to test the consumer understanding of product features and reduce information asymmetries," said the reinsurer.

"This is positive as insurers can all benefit from better-informed customers."

Swiss Re said it is a reasonable assumption to make, that clients will have someone in mind when they apply for a life insurance policy.

Despite this, policyholders are "often unaware" that making sure this happens efficiently is dependent on how the product is set up. In other words, making sure their life policy pays the intended beneficiaries.

"There is an onus on the industry – insurer or distributor – to explain this to them and to ensure that it happens," said Swiss Re.

"We should now be asking ourselves what we would expect from a policy for ourselves or a family member – would you intend to take out a life insurance policy and make it harder (or even just slower) for your loved ones to access the money after your death?

"The likely answer is no. So, we should look at how we can support customers to understand their options and help them make good financial decisions."

Between April and June 2022, family court statistics showed a quadrupling of the time taken for issuing grants of probate or administration.

The time from application to grant issue was typically within two weeks prior to 2019, but the average times over recent quarters have deteriorated to eight or nine weeks.

"[This] threatens to undo the previous advances made by the market in reducing average times from notification of death to payout," said Swiss Re.

"For those awaiting an expected payout, at the point when their need for the proceeds can be urgent and immediate, this increases the importance of the policy being set up to avoid probate."