The Effects of Uncertainty Around IP Claims: Protection Forum Part 2

This is the second post in our series covering our February Protection Forum. In this section, attendees discussed the uncertainty of advisers and consumers around the outcome of income protection claims, and what type of information clients want from advisers and providers.

I think, this point that Angela has made about the impact it has on advisers when IP claims are not paid and the lack of clarity. And I’m enough of a dinosaur in this industry to remember the days of PHI and when it was popular and why an awful lot of advisers moved away from PHI and perhaps wrongly towards CI. It’s the uncertainty about the claim. Advisers really being worried, and I’ve got to be honest, I think the industry needs to be more candid about this.

I’ll put my head in the lion’s mouth. I think IPTF need to be more candid about this. But I mean, particularly, I want to call out, and I know Johnny Timpson’s on the call. Some years ago, four or five, the Financial Services Consumer Panel did a big study where frankly, someone that was on that panel and is no longer there was gunning for the adviser market and put together something that was highly critical of the adviser market because more CI than IP was sold.

And what I found hilarious when they published their conclusions was they also published some really, really good consumer research, which explained, actually, and it staggered me, I seem to remember writing a piece about it at the time, that the Financial Services Consumer Panel clearly hadn’t read the research, the results of the research they commissioned.

That research and I have spoken to Johnny about this recently, that research made it very, very clear that a lot of people didn’t trust that insurance companies would keep paying out, year in, year out. They preferred the certainty and it’s wrong that they did. But you know, this was a really good piece of consumer research, which personally I think needs to be revisited, and I think it’d be great if the consumer panel could revisit it and update it. It said very clearly that consumers, and this was consumer research, wasn’t of advisers, consumers preferred the certainty of a lump sum payment.

Now, if that’s what consumers think, we need to up our game in different ways. I mean, to be fair, Adam, you’ve been doing a great job working with various insurers to identify claims that have not just gone on for years but gone on for decades and provide that as evidence. But Angela’s example so worries me. And I think as an industry, if we’re going to go out there, IP absolutely should be the best contract in the market, it should be the first thing we visit.

And there’s one other point, someone drew to my attention recently some CII material where a couple of examination questions were posed. It was asking what sort of protection people should take. And in both instances, it was suggesting life cover where, frankly, IP was absolutely the right answer. And if the CII can’t even get it right, where are we? Sorry. So I think we need to look ourselves in the mirror and recognise CI is a great contract, but it isn’t perfect. And we’re equally, as I say, it really worries me when the Chartered Insurance Institute themselves don’t seem to understand when IP is more important and that actually having some income is more important.

I’ve heard it a lot over the years myself that there’s this argument made from advisers that that income protection, you haven’t got that certainty that you might not be paid the full benefit because your earnings are changed, et cetera, et cetera. I do think we should also be mindful of the fact that challenge exists with CI as well in a slightly different form, in that the client might fall ill and actually not meet the CI definition.

So I would challenge any adviser that makes that argument that CI is a better proposition because there is there is a greater degree of certainty– Yes, there is, if you get if you fall ill and you meet the definition wording, you’ll get 100 percent, you might get the full pay-out, but you might not meet the definition. And I think that’s a pretty strong counterargument that I would throw back to anyone that says they’re not going to bother with IP, they’d rather do CI.

But I recognise that, I certainly think that one of the challenges with IP is absolutely the fact that unlike a lot of insurance contracts, the policy that’s set up when that plan goes live, the client is insuring themselves for a level of benefit that will be assessed at some future time as and when they claim, and that that is a problem. I think that not enough is done to address that. There’s minimum benefit guarantees, a very minuscule number of insurers provide cover with no link to earnings and an even smaller number of insurers offer clients the ability to do upfront financial underwriting.

But I don’t think enough is, and I guess my sense would be that it’s that fear from advisers that their client pays X amount per month for a benefit amount that they may not be paid at some future time if they claim because their earnings have changed and for any number of reasons, they haven’t contacted the insurer or their adviser to notify them of that fact.

In my experience, that’s the most common thing that goes wrong with IP claims– it’s not people not being ill enough and this sort of stuff. It’s that problem with earnings, and I’ve seen clients over the years claim on their IP and be told they’re going to be paid nothing because in the worst scenario, the client had tried to muddle through whilst working for six months whilst being quite unwell and actually they’re self-employed haven’t earned anything. So consequently, were paid no benefit at all and were given a pretty measly hamper by the insurer.

So that’s a problem. But I think we just need to be mindful of the fact that there’s no certainty with CI either, but arguably the only one where there is any certainty is life cover, really, because you can’t possibly not be dead. So, I think that’s just important.

I hate to say it, but I don’t see any brilliant examples at the moment within the whole of MAB. I mean, there could be examples of people online who say, “Yeah, we’re doing it,” but I haven’t seen anything that I think is brilliant. Sending out a statement that just says: here’s your sum assured and some document that goes on for pages isn’t what the customer wants, I think. They just want to understand what the key benefits are in real plain, simple language and we’re working on it at the minute.

That’s why I’ve put it up there following the AMI Viewpoint report that’s suggested, especially, I was surprised that you’ve seen the grid that I’ve put on there, which is out the AMI Viewpoint, it says 18 to 34 year olds, just about half of them say they do want a personalised annual statement that summarises what their policy does. And that sort of surprised me because you almost think the younger people they might just think ‘no, leave me alone.’ But clearly they’re asking for us to be in touch. So that has spurred us on, and we are in the middle of a design of stuff, and I’m happy to share with the group when we’ve got some something together. But at the moment it’s sort of embryonic and there’s nothing really out there that I’ve seen that I say: that is brilliant we’ve got to get a copy of that. And if anybody’s got anything to share, I’d be all eyes and ears.

But one thing I would just say, we have done an exercise with customers that…. We haven’t got many orphan customers, but we’ve got some and we contacted about 500 of them about October time last year, really going through an exercise of just reminding them what they’ve got because nobody had been in touch for a while. We actually uncovered 16 customers that could have made a legitimate claim on the policy that they had actually got, and these 16 had no idea that they could. And in fact, one of them had cancelled the policy a long time ago, it was an L&G critical illness policy.

We got in touch with L&G and said, “Look, this customer actually contracted this type of cancer while they were paying, but have subsequently cancelled it. The policy hasn’t existed for nearly three years.” And L&G have just paid out on that on that claim, amazingly, even though the policy hasn’t existed for so long because we prove that it was still in existence when the customer could have claimed.

But what was shocking was just the number of customer that genuinely had no idea, even though most of them were still paying it, that they could even have made a claim. It’s unbelievable, really. And that sort of says to me, we’ve got to do more in terms of reminding, because if we if we found 16 or 17 out of 500, how many other claims are sat out there? It could be thousands of them.

Adam Higgs: Protection Guru is going to be working with the PDG and AMI around increasing the uptake of electronic GP reports by surgeries. We’re looking for examples of bad client outcomes due to GP reports taking too long to be returned, and we’ve set up a page on that site for you to report any stories back to us which can be found here.

We’re also in the process of creating a page to capture your stories of your claim experiences with different insurers—how easy it was, how long it took, how empathetic they were in managing the claim.