Recent stories in the press have again lambasted the insurers
over critical illness insurance. The core problem is that a
critical illness claim is not as straightforward as, for
example, a claim under life insurance. With life insurance it's
going to be hard for the insurance company to argue that you're
not dead!
By their very nature, critical illness claims are much more
complicated. The insurer will need to satisfy itself that the
claim is validated in three key areas before it meets the claim:
-
Has the illness been correctly diagnosed?
Is the confirmed illness included in the schedule of insured
critical illnesses covered by the policy?
Did the policyholder fully disclose their medical history and
current state of health on their original application form?
On the first point, it's obviously in the policyholder's
interest to verify the medical diagnosis - so there's rarely
ever any conflict between the insurance company and the
policyholder on that issue. It's the next two areas which the
insurer needs to validate, where conflicts seem arise.
With constant development in the medical knowledge, from time to
time there can be some situations where validation falls into a
grey area - a policyholder will argue that their specific
illness is insured whereas the insurer will argue that it isn't.
Insurance companies are aware of this problem and they often
change the wording in their policies in an attempt to clarify
the scope of the cover and eliminate areas for dispute.
Nevertheless, disputes do happen all too frequently and sparks
fly when a policyholder thinks his illness is covered but the
insurer disagrees.
A case in point comes before the Courts shortly. Mr Hawkins from
Staffordshire is suing Scottish Provident for £400,000 under the
terms of his critical illness policy. Basically, his medical
advisers believe his illness is insured whereas the insurers'
medical advisers disagree. If the Court find in favour of Mr
Hawkins the press will have a field day - and the critical
illness insurers will suffer further bad press they can sorely
afford.
Another summons, filed recently in the High Court and again
involving Scottish Provident, highlights the problem when an
insurer considers that a claimant mislead them on his or her
original application form. Our understanding is that if an
applicant omits relevant information or provides misleading
information on their application from, this amounts to obtaining
insurance on false pretences. This summons has been issued on
behalf of Thomas Welch from London who is suing Scottish
Provident for £206,800. The issue goes back to 2000 when, a few
years after first starting his critical illness policy, Mr Welch
received confirmation that he was suffering from testicular
cancer. The insurer refused the claim because of "non-disclosure
alleging that Mr Welch had not been honest about his smoking
habit. He does admit that he did smoke earlier in his life but
is resolute in saying that he had long since given up when he
applied for critical illness insurance. As such, Mr Welch
believes that he did complete the application honestly.
We assume that the case will centre upon whether Mr Welch
accurately answered the smoking questions on his application.
Most insurers define "a smoker" as someone who has smoked, or
has otherwise used, nicotine products within the previous 5
years. (Some insurance companies adopt a 1year cut off.) If Mr
Welch had indeed smoked during the specified years, he would
have been obliged to disclose such information on the
application and the insurer would have priced his insurance
accordingly. In this context, it is relevant to note that
smokers are charged as much as 65% more for critical illness
over than non-smokers. We anticipate that Mr Welch's lawyers
will argue either that he did not smoke during the period in
question or he omitted the smoking information by pure oversight
and in any event, his past smoking is not irrelevant to his
testicular cancer. Interesting issues and we'll let you know the
outcome.
Mr Hawkins case is fundamentally different. It illustrates the
problems that can arise if policy documents imprecisely describe
an illness or if the technical diagnosis of an illness provides
the scope for medical professionals to disagree. Either way the
issues are entirely outside the policyholders control at a
distressing time for them and their families and we must
appreciate their anguish. The long-term solution must lie in
improving the medical definitions within the policy. It is
probable that this will result in more medical jargon that the
average man in the street will find difficult to understand -
but perhaps that is preferable to what Mr Hawkins is going
through.
Mr Welch's court case must stand as a clear reminder to
everybody that applications for insurance must always be totally
accurate and completed in good faith. We recognise that in some
cases this may still leave room for dispute (and Mr Welch's case
may be an example), but if an applicant fails to complete the
forms accurately, they are taking the great risk and any claim
they make could be rejected.
Rightly or wrongly, the newspapers have a history of giving the
insurance companies a hard time, casting them as heartless big
business. This serves to reinforce the public's feeling that
insurance companies are devious and not to be trusted -
especially it seems, in respect of critical illness insurance.
This view is reinforced by the fact that around 20-25% of
critical illness claims are rejected (although this rejection
rate does vary between insurers). This issue is something that
insurers must come to grips with - it's bad for clients and
undermines confidence in insurance - and that must be bad for
the development of the insurance industry.
In fact to put no finer point on it, it's a tragedy. As many as
1 in 6 women and 1 in 5 men will be diagnosed with a critical
illness before their normal retirement age*. As such, critical
illness insurance is vastly important for the protection of
family finances. The problems we have highlighted are obviously
contributing to a situation where almost everybody needs
critical illness insurance, but fewer and fewer of us are taking
it up.
(* Source: Munich Re.)
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