The problem with claims

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The biggest category of complaints in the claims area relates to non-disclosure.

Thursday, February 28th 2013, 7:27AM 2 Comments

by Russell Hutchinson

Even before that hurdle is reached there are lots of people who call their insurer and find that they cannot make a claim – for reasons ranging from a complete mistake (thinking their house and contents cover is with a life insurer) to just optimism (hoping an old contract long-since lapsed is still in force).

We have already seen more activism on the part of news media – they seem more eager than at any time in the past to report on declined claims.

They also seem less inclined to accept an insurer’s version of events.

In the UK there was a particularly rough time given to the insurers over critical illness claims in the early 2000s which prompted a number of changes – from standardised policy wordings to tele-underwriting. The rate of declined claims dropped considerably (from more than 25% in 2004 to less than 6% in 2007) and yet still poor coverage persists.

The challenge here is that we haven’t even been through that watershed. I suspect our claims decline rates look similar to the UK’s prior to recent changes. An awful lot of the shift in decline rates can be attributed to consumers knowing better what they are covered for – here language and the medical profession are shaping consumer views in a way which insurers find challenging.

Critical illness is a particularly tricky one because of the language used: the industry likes to say it covers “cancer” yet many small melanomas, for example, are not covered.

The foundation of the product is covering “heart attacks” yet medical science can find heart attacks smaller than the industry definition is prepared to admit. The galling thing about this situation is that it is not going to get better – it will only get worse and worse with each of the 40+ listed conditions that make up most critical illness contracts.

The product design responses can take two different directions – one is to increase the difference between insured definitions and medical definitions, taking a hard line, if you like, on severity, so that high payment levels could be maintained. Another is to make policy wording match common use definitions but pay small sums for what are frankly ‘non-critical’ illnesses and full payments for the truly critical events – i.e. adopt severity-based definitions.

Advisers keen on retaining something as close as possible to the current approach can do their bit by taking time to ensure that clients understand what benefits they have and what they can expect from policies.

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