For the life insurance industry (and frankly any insurance industry) paying claims and helping consumers when they hit hard times is the most important thing we do. It is also something that we are very good at. In 2018 paid claims reached 98% across the industry.

In the critical illness market insurer claims philosophies more often than not, are to find a way to pay claims even if the client has a serious condition that does not necessarily meet a strict definition. This is clearly great news for advisers and clients alike, but is an insurer’s claims philosophy something that can be relied on long term?

In our work benchmarking insurers critical illness coverage, our panel of independent medical practitioners scrupulously analyse policy wordings to scientifically identify the likelihood of a client being able to claim if diagnosed with one of the conditions covered on an insurer-by-insurer, contract-by-contract basis. As part of this work, we give feedback to insurers on their scores and often come across push back where the insurer states that although their wording might not be as broad as others, they would still pay a claim due to their claim philosophy and should be scored based on the philosophy rather than the actual legal contract wording.

When designing critical illness wordings, insurers have to tread a fine line between providing the broadest coverage possible, whilst also ensuring that the wording will result in payment for the specific condition being covered. If the wording is too broad this might result in claims being paid for conditions that might not have an impact on a client’s life, however if the wording is too strict, they might preclude claims they would want to pay. Getting the wording right is difficult and whilst some will offer the broader definition, others will opt for a slightly stricter wording with more stipulations relying on their claims philosophy for anything that falls outside of this.

A prime example of this can be found in certain definitions of stroke as our panel of independent medical practitioners explain:

“Many insurers state the need for definite evidence of death of tissue or haemorrhage on a brain scan, although this is not a prerequisite to the diagnosis of stroke. This can be made on clinical grounds alone. Some insurers only require a definite diagnosis of a stroke by a UK neurologist with clinical symptoms that have lasted at least 24 hours.

“As with any diagnostic test, there is no guarantee that it will always accurately demonstrate the abnormality. This is known as the “sensitivity” of the test. It is well known that certain types of ischaemic (clot) stroke do not appear on brain scans, particularly small non-disabling strokes, those in the posterior circulation and brain stem, and those that present late for medical attention.

“A recent metanalysis, published in 2017, found that 6.8% of acute ischaemic strokes had no findings on MRI scanning, especially among patients with posterior circulation strokes. This is an example of how stipulating a specific diagnostic test can reduce the likelihood of somebody receiving a successful claim. It is understandable why an insurer may add these caveats to their wordings, as other conditions can often present as mimics of stroke, which could potentially result in an incorrect diagnosis. Hemiplegic migraines are a good example of this. But, from a consumers perspective, the simpler definition would be the obvious pick.”

Whilst we applaud insurers that will pay claims even if the client does not meet the strict definition, we do not believe that this is something that a client, or their adviser, can rely on long term. A claims philosophy can change and there are many reasons why:

  • A change policy administration – Over the last couple of years we have seen a number of insurers sell their protection back book. An example of this is Old Mutual selling their insurance-based savings, pensions, life and with profits business to ReAssure Ltd which was subsequently was sold to Phoenix Group Holdings plc. Where there is a transfer of administration such as this the client’s policy does not change, however will Phoenix have the same claim philosophy as Old Mutual, especially seeing as they are a closed book provider?
  • A change in the insurer’s profitability – Thankfully we moved away from a critical illness market driven by price and low margins a long time ago, however there is always a risk of changing economic conditions and how this might impact insurer profitability. If such a scenario occurred, whilst insurers would always pay every valid claim, might they re-assess their claims philosophy and reduce the number of claims they pay on cases where clients are not strictly meeting the criteria?
  • Enhancements in medical science – This is perhaps the biggest risk to the critical illness market. The pace of change in medical science means that new diagnostic techniques, treatments and even cures are being developed faster than ever. The result of this will be that many clients are covered for conditions that in the future will be hugely treatable and no longer considered severe. Other conditions may be diagnosed at an earlier stage and as such be far more treatable. Those that offer broader definitions may find themselves paying far more claims, whilst those with stricter definitions may reconsider their claims philosophy as certain conditions are no longer critical.

There are also many dangers in relying on a claims philosophy. As our independent panel of medical practitioners highlighted, caveats are often placed on critical illness wordings to identify grey areas in diagnosis where the client might be suffering from a completely different condition that is far less severe. Clearly if this is the case then an insurer could decline the claim for not meeting the definition. On the other hand, you may have a client that is suffering from the condition but falls into one of the caveats. In such a situation there is a risk that after reading the policy wording, or even consulting their doctor they might not make a claim as they realise they have not met the definition even though under the insurers claims philosophy that might have received a payment. Clearly having a knowledgeable adviser would help but not all clients remain actively in contact with their adviser.

We do have a lot of sympathy for insurers as ultimately, they genuinely do want to pay claims. If critical illness wordings become too broad, policies will become restrictively expensive and with advancements in medical science we may end up in a situation where masses of claims are being paid on conditions that are no longer serious. If an insurer applies too many stipulations they risk not being selected by advisers as their cover is not as broad as others.

By no means do we want insurers to stiffen their claim philosophy and there will continue to be cases where a client falls seriously ill but might not meet the strict definition of a CI policy. In such scenarios we would encourage insurers to take a lenient view. From an adviser’s point of view however, the claims philosophy attached to a policy can change and as such and when comparing critical illness policies, the focus should remain on what is in the terms and conditions and what the insurer is contractually bound to pay out for.