Non Disclosure on Life and Critical Illness Insurance

[Charlie505]

There have been some well publicised cases recently where claims have been in dispute through non-disclosure. Paid claims on Life are about 99% and 92% on CI but those that are not paid erode public confidence when so many are in need of insurance. Sometimes people are dishonest in what they disclose - but often they are just careless or make mistakes. And when this happens it can be a financial catastrophe at a personal level.

In March the Consumer Insurance Act law is changing the burden of responsibility more in consumers favour - but people will still need to be careful to answer questions correctly. The industry has also improved its record on paying claims in recent years - but can/should it do more?

Regardless of what the law says – is there generally a case to be made for insurers to take a different approach to non-disclosure on application forms – and what specifically should that approach be?

It would be interesting to get your thoughts and suggestions on this.

For example:

If someone omits a material fact or tells an untruth – should the insurer always ignore that and pay up anyway?
If so - would you be prepared to pay higher insurance premiums to cover that approach?
If not - what process or criteria would you use to separate the honest mistakes from the deliberate liars?
How could you ensure that this would apply consistently and fairly to all customers?
What should the appeal process be? Does the Ombudsman provide the right solution?
What more can be done to explain insurance and risk to the public?

Over to you ...

[TUTTSI]

Re: Non Disclosure on Life and Critical Illness Insurance

Charlie from experience as an ex motor insurance broker some years ago now.... we found little white lies such as living in the neighboring post code which was lower rated.... only got found out when they had to supply their driving licence after a motor accident. Not fully disclosing ALL accidents and convictions.... they they were minor, but again this got picked up generally after a claim was made. Funny how people filling out claims forms will disclose more information than when they first completed the proposal form.

These days, they have you by postcode and then confirm your house number, they know from your car registration what make and model it is and the CC again you cannot get away with lying about this. There is a central computer records which advises them everything they need to know so from a motor insurance prospective most things are covered.

We did touch on life cover but again I am sure things must have changed dramatically over the years and insurers are asking a lot more questions.

The question you ask is would we be prepared to pay more.... no because the risk is for you not for others who tell lies whether or not they intended too.

After my husbands recent problems with the Prudential loading him for a condition that he does not have and has never had is diabolical. The GP is very annoyed as he has not disclosed this condition and neither has my husband as he does not have Rhematoid Arthritus at all and has never had and again it is not a life threatening condition - so why would they load for something that he does not have. He has now been waiting for the Prudential to write a letter confirming that this loading has been taken off and that Rhematoid Arthrius is also deleted from their records. They cannot even write this letter which has now been going on for well over a month. He wants to start the policy but wont until they have set their records straight. I have told him if they are a nightmare now - what would happen in the event of a claim (hopefully this wont happen) but can you see where I am coming from. From my prospective both sides can make mistakes and sometimes they cannot be rectified.

[MissFM]

Re: Non Disclosure on Life and Critical Illness Insurance

Hi Charlie!

IMHO a lot of the problems lie with the training and ethos of the brokers, or intermediaries, or salespeople. It's the same with the banks - throughout financial service industries - and it doesn't stop there. I imagine remuneration is mostly commission based in some way shape or form. If someone has a financial incentive to sell a product in volume it is unfortunately human nature that they may be tempted to cut corners. Throughout this forum there are examples of people being sold a pup by someone who quite possibly doesn't even understand the Ts&Cs themselves, just trained in sales, which involves using psychological techniques to overcome objections and close the sale.

So first urgent suggestion: train and regulate the salespeople differently so that the consequences of non-disclosure and what is actually, in words of one syllable, meant by non-disclosure is fully understood by the punter.

I was impressed by your gambling analogy on another thread: people need to have it clearly explained why it's better to have an odds-on bet on the winner than 100/1 on a loser. Obvious, I know, but insurance is a trade in hopes, fears and dreams.

Anyone who ever has the misfortune to accidentally catch any daytime tv ads will know that sales of life, health and CI insurance (particularly) also exploit superstition.:witchy:

[Charlie505]

Re: Non Disclosure on Life and Critical Illness Insurance

Tuttsi
You will know more about motor than me - but the observation I would have is that as people go for lowest possible price these days (they will swap company for a fiver) on comparison sites. You might think of it like a 'value burger scandal' - it is driven by consumers choosing price over quality.

Similarly in Life/CI as technology and data gets more sophisticated the pricing by insurers has become cheaper and more sensitive to competition - so insurers have to be increasingly vigilant on their costs (e.g. claims) too. It is not as relaxed as it was when I was serving my apprenticeship.

Your Pru experience sounds as much about admin error and sluggishness as anything else - not to excuse it though. I also had such an experience (with another company), but got the medical misunderstanding sorted out quite quickly (it turned out that my doctore had been unclear in what he had said and the insurer had made a false assumption - which it took a further clarification from my GP to resolve).

[Charlie505]

Re: Non Disclosure on Life and Critical Illness Insurance

Thanks FM - good points on the issue of sales practices.

Mis-selling happens for one (or both) of two reasons. Either the salesperson has a conflict of interests (under pressure/incentive to sell), or is lacking in knowledge. You may know that from the beginning of this year, anyone providing advice on investment products (such as pensions, or bonds) can't be paid commission, and they must be trained to a level equivalent to first year of a degree. Risk products like life insurance are not included - mainly because they are considered to be more simple for people to understand and they can cancel and shift to another provider without penalty if they think they got a bad deal.

So you could argue that those advising on protection products should be better trained and not paid by commission - but there would be consequences. Higher qualifications means higher wages and higher costs to customers. No commission means advice has to be paid for somehow else - by explicit fee. So you have to ask whether people would pay a fee to someone to advise them on buying life insurance.

Ideally though you are right - a person should sit down with an expert and go through a form carefully. It's just that an hour of a professional's time to do that doesn't come cheaply. Rumour has it that commission and training for protecion products could be the next step for the regulators.

Your point on daytime TV is a good one too. No intermediary/adviser/salesman. Just celebrity endorsement and free pen. It is not that there is anything inherently wrong with the product - but too often vulnerable people don't understand what they are buying even if it is in bold print on the screen. Somehow more needs to be done.

[MissFM]

Re: Non Disclosure on Life and Critical Illness Insurance

Thanks FM - good points on the issue of sales practices.

Mis-selling happens for one (or both) of two reasons. Either the salesperson has a conflict of interests (under pressure/incentive to sell), or is lacking in knowledge. You may know that from the beginning of this year, anyone providing advice on investment products (such as pensions, or bonds) can't be paid commission, and they must be trained to a level equivalent to first year of a degree. Risk products like life insurance are not included - mainly because they are considered to be more simple for people to understand and they can cancel and shift to another provider without penalty if they think they got a bad deal.

So you could argue that those advising on protection products should be better trained and not paid by commission -but there would be consequences. Higher qualifications means higher wages and higher costs to customers. No commission means advice has to be paid for somehow else - by explicit fee. So you have to ask whether people would pay a fee to someone to advise them on buying life insurance.

Ideally though you are right - a person should sit down with an expert and go through a form carefully. It's just that an hour of a professional's time to do that doesn't come cheaply. Rumour has it that commission and training for protecion products could be the next step for the regulators.

Your point on daytime TV is a good one too. No intermediary/adviser/salesman. Just celebrity endorsement and free pen. It is not that there is anything inherently wrong with the product - but too often vulnerable people don't understand what they are buying even if it is in bold print on the screen. Somehow more needs to be done.

Many thanks Charlie - as always a point of view very clearly and intelligently explained.

However, the bits above highlighted in red (particularly) are, whether accurate or not, not in accordance with the ethos behind any "mutual" insurance policy or provider.

I think this is where there is an extreme conflict now. Insurance began as a mutual activity between individuals forming communities wishing to protect themselves financially qv the Quaker Community and Friends Life, in a contract/spirit of complete trust and transparency.

It has become big business- individuals and companies are making obscene personal profit from it whilst at the same time the contributing individuals are being fleeced, denied cover and benefits, on technicalities.

People cannot "shift to another provider " at the point where they need to make a claim.

In a truly mutual co-operative, people would expect to pay fairly for what is effective and just. What we have now is an inept system profiteering at the expense of genuine clients and by the way employing untrained inexperienced people to advise on issues of which they have little if any knowledge or experience - with a financial incentive to sell more.

I doubt that any genuinely incorporated member of a mutual society would have a problem with putting a little more money into training, advising new "members" and a lot less into paying over-inflated wages and bonuses for execs.

:flypig:

[Charlie505]

Re: Non Disclosure on Life and Critical Illness Insurance

Lots to think about here ...

I'm of the vintage when I can remember the 'good old days' when most of the household names were mutuals. The mutual model had its pros and cons - the pros are as you suggest, the cons were that they couldn't access capital to invest and expand. Mutual customers thought their companies were sleepy and put on pressure to demutualise - the last I recall was Standard Life who eventually caved in to customer pressure to demutualise (most saw they could make a quick de-mutualisation buck). So I guess the point I am making is that the greed gene is in us all and you don't have to be a fat cat to have it.

I also remember back in the 80's we were much more trusting, and consumers were less vocal - but I can tell you the practices were much worse than today. There was no real regulation, standards of knowledge and ethics were low, there was no Ombudsman etc. I have plenty of City anecdotes from that era to make your hair curl. Things are infinitely better now - but we are all more knowing, less naive, and we expect much higher standards in everything we buy. Legal Beagles is evidence of that.

I was at an insurance conference in Brussels a couple of years ago and compared notes with people from other EU states. What struck me most is that whilst in the UK we see everything these days through the lens of 'what would that mean for customers?' other countries have yet to start thinking that way and look at you in puzzlement when you ask the question. UK consumers may not trust the insurance industry like they used to - but in my view that's not because the industry has got worse. Quite the contrary, it is because consumers have grown up and are asserting themselves in a way that doesn't happen on the continent.

On your specific points, the argument about switching providers is largely about the cost of the product - if you think you got it wrong on life insurance, it's not something set in stone as it would be for an annuity for example. You are right that if the problem is at claim stage it's a different matter - but all insurers should operate to fair standards on claims practice. That should be a given.

As for the conduct of advisers, gone are the days when insurers had sales forces. The Man from the Pru was one of 7000 in the 1990s and they all went before the turn of the century (uneconomic, and the risk of mis-selling is too toxic to a brand). Products are now typically distributed through independent financial advisers or brokers. These are not controlled by the insurers - they are businesses that are separately regulated. On pensions and investments they now have to be paid by explicit fees, but on life assurance it is still the old practice of commission (don't get me started on that). Some of them make a very good living indeed, and few will be badly off. Some are excellent, some I wouldn't let near my mother.

As for insurers, yes there are profits as in all businesses. No one is going to invest in a company if they can't get a return that is better than a no risk bank deposit. So it is in everyone's interests that companies make profits - as long as they are not excessive and don't distort ethical behaviour towards customers. Insurers will get it wrong sometimes - but of course the issue with banks was that it became the normal culture. And the salaries at the top? Well if you run a household name insurance company of global scale you'll probably earn a million or two per year - some might say that is excessive, but it would be loose change to a top banker.

[MissFM]

Re: Non Disclosure on Life and Critical Illness Insurance

"as long as they are not excessive and don't distort ethical behaviour towards customers. Insurers will get it wrong sometimes - but of course the issue with banks was that it became the normal culture. And the salaries at the top? Well if you run a household name insurance company of global scale you'll probably earn a million or two per year - some might say that is excessive, but it would be loose change to a top banker. "

Thank you, Charlie, for your usual magnificently well-reasoned and informed response.

The above quoted absolutely takes my breath away, though - and to put it simply, two wrongs don't make a right, they never will. I don't think anyone should be comparing anyone's salary to a "top banker's" salary, or even a tb's loose change. These people PILLAGE (they do not earn) obscene amounts of money, often through zero work and through losing vast sums of money for eveyone who relies on their illusory "talents".

Had to have that initial rant (not over yet) but need to digest your post properly first.

Also - we insure our livestock and some vehicles with the "NFU Mutual" - is that a misnomer? Have noticed their premiums have risen ridiculously this year and will be looking to change insurers - but are they "mutual" or not?

Ciao for now :ranger:

[Charlie505]

Re: Non Disclosure on Life and Critical Illness Insurance

I guess I could have made my point with more delicacy FM! We're straying from the subject a bit into the inequality/fat cat issue but it is one that most people feel strongly about.

Why compare with bankers? I take your point that two wrongs don't make a right, but the insurance industry is sensitive about being lumped together with bankers in the public's general perception of the financial world. Insurers would say that they had no part in creating the financial crisis, and have not been found wanting by the regulator. They would also say that they provide a valuable service to the public and are one of the UKs largest exporters, employers, and investors in our country.

But of course we all hate people who earn what we consider to be obscene amounts of money - yet still get it wrong. The market drives salaries for those at the apex to ever higher levels - whether you are a CEO or a football manager.

On the one hand, the average tenure of a CEO is something like 3 years - so the argument is that there is a risk premium to be expected if you know the chances are you will be sacked in short order, and without that you will have a CEO just trying not to make a mistake rather than being a bold leader. On the other hand once the compensation reaches a level where you could afford to retire comfortably after a year or two of earnings you risk the CEO having a devil may care attitude ...in other words you have a moral hazard.

In my opinion the recruitment industry has a lot to answer for. They survey salaries and then ask firms what level they expect to pay. Of course firms tend to say 'we want someone managers/execs of real quality - our policy is to pay top quartile salaries'. Well if everyone does that it just bids up the average. Until firms are brave enough to announce a policy of paying 'below average salaries' the maths will drive things higher. And of course that is in the interests of the recruitment industry.

NFU - yes they are a mutual, one of the most prominent left. This means that there are no shareholders - they are in effect owned by you the policyholder. I couldn't say why premiums have gone up on livestock and agricultural vehicles, but it is a reasonable question to ask them. What I would say in general terms is that for motor insurance the margins are very fine indeed - almost always an insurer will pay out more in claims than they take in in premiums in a year...and the only way they can make a profit is if investment conditions have allowed them to make a turn on those premiums by investing them while they have them.

I haven't had many takers on the questions on disclosure though - I guess it was never going to be as racy a subject as a David/Goliath scandal in the press. :ohwell:

[MissFM]

Re: Non Disclosure on Life and Critical Illness Insurance

Thank you Charlie

Am sad too that most people haven't taken the opportunity of arguing a case or highlighting where they think the present system fails. As you say, it is not such an emotive or compulsive thread on the face of it.

Can I ask you a personal question (actually more than one personal question)? Well, of course I can ask but I hope you won't be offended and I also hope you will be happy to answer:

1. Your terminology sounds very American (concomitant questions)?

2. I know you told Puff you didn't work for an insurer but you clearly do work in the industry - would you be willing to say in which sector, where and how?

I think you will, most likely, get more questions and comments at some point.

:nod:

[Charlie505]

Re: Non Disclosure on Life and Critical Illness Insurance

No FM, not American (not that Charlie of the anonymous speakerphone voice ...but your question did prompt me to put up a profile picture!)

Sorry, but I’ll pass on the specifics of second question for the present if you don't mind. My territory is Life/Pensions but if I were to identify myself I could no longer make unguarded comments, and posting would then just be a chore.

I am interested in promoting continuous improvement, and I talk regularly to knowledgeable insiders. But I also find it thought-provoking to engage with what consumers think on a site like this - it adds helpful context that I can feed into discussions within the financial services community ...as a reality check.

Sorry to be coy, and hope you understand.

[Inca]

Re: Non Disclosure on Life and Critical Illness Insurance

(pssssssssssssssttt,,Oi Charlie,,,I still think it stinks msl

[Charlie505]

Re: Non Disclosure on Life and Critical Illness Insurance

Hi Inca - have a look at the NH thread ...

[TUTTSI]

Re: Non Disclosure on Life and Critical Illness Insurance

Charlie if you upgrade to VIP at anytime we have lots of interesting discussion threads as well as a chat box.

[Charlie505]

Re: Non Disclosure on Life and Critical Illness Insurance

Charlie if you upgrade to VIP at anytime we have lots of interesting discussion threads as well as a chat box.

Thanks Tuttsi - there was I assuming I would have to be a well behaved puppy until I was offered such a tasty biscuit! :-)