A cure for sick insurance

Insurers have been stung by accusations that they are too quick to weasel out of paying insurance claims - and appear to be taking small steps to make amends.

Norwich Union, Britain’s biggest insurer, announced today that it will be contacting 5,000 of its customers with critical illness and life insurance policies inviting them to confess to illnesses or medical conditions they failed to declare when they originally took out their plans. (see Insurer to ask customers: did you forget to tell us anything?)

Every year insurers reject about one in five life and critical illness claims for so-called “non-disclosure" often causing great distress.

Norwich Union's efforts are, therefore, a step in the right direction, but more needs to be done, and not just by one insurer but on an industry wide level.

In most cases, when a customer applies there is no attempt to check medical records. The insurer and their agents seem keen to wave the paperwork through, possibly because a sale can earn them commission of up to 200% of your first year’s premiums. It is in their interest to make everything seem simple and straightforward.

However, when a claim is made the mood can quickly change. Then every effort seems to be exerted on trawling through medical notes to find a problem. The commonest of ailments, forgotten or considered insignificant - a headache, for example - can become the focus of intense scrutiny and be sufficient to invalidate a claim - even if the missing detail is irrelevant to the illness or death in question.

What can be done? One is for insurers to make the questions they ask on their application forms less ambiguous, as these leave the average consumer vulnerable to an oversight.

Non-disclosure should not be used as a blanket excuse for turning down claims - if undisclosed details were completely unconnected to the cause of death and would not have affected the premiums set, or had been forgotten inadvertently, the claim should still be paid.

Insurers could also make the contracts more watertight by undertaking better checks of medical records when policyholders apply to make sure they haven’t missed anything.That costs money which would massively increase the cost of a policy, says the industry.

But wouldn’t many customers be happy to pay for the extra piece of mind? Tell us what you think.

Comments

[Peter, London]

This is a reminder of the insidious nature of insurance commissions and their impact on behaviour of sellers of financial products.

As an accountant, we treat revenue on long term subscriptions on a pro rata basis spread over the transfer of economic benefit.

Yet commission paid to financial services sellers & providers is paid out of the up front premiums meaning any value takes years to establish and the salesman is long gone by the time any problems are evident.

We would all benefit from commissions paid over the life of the product. That would encourage behaviour by salesmen & suppliers to ensure that the product is fit for purpose and meet the needs of consumers over the life of the product.

Seen any flying pigs recently?