Recent press coverage has again lambasted the insurance industry over critical illness insurance. The underlying problem is that a critical illness claim is not as straightforward as, for example, a claim under car or life insurance. With car insurance it’s patently clear whether or not you’ve had an accident - the damage is there to be seen and repaired. And with life insurance it’s going to be hard for the insurer to argue that you’re not dead!
By their very nature, critical illness claims are far more complicated. The insurers will need to satisfy itself that the claim is valid in three primary areas before it pays out: -
Is the medical diagnosis correct?
Is the diagnosed illness included in the schedule of insured critical illnesses listed within the policy documents?
Did the policyholder fully disclose their state of health and medical history on their original application form?
It’s clearly in the policyholder’s interest to check that the medical diagnosis is correct - so there’s rarely ever any conflict between the policyholder and the insurance company on that issue. It’s the other two areas which require validation where conflicts sometimes arise.
With constant research and development in the medical field there can sometimes be some illnesses where validation falls into a grey area - it can be argued that an illness is insured and it can be argued that it isn’t. Insurance companies are aware of these problems and they frequently revise the wording on policies in an attempt to clarify the extent of the cover and eliminate scope for dispute. Nevertheless, disputes are relatively common and sparks fly when the policyholder thinks he is insured but the insurer disagrees. This is illustrated by a case that comes before the Courts shortly. Mr Hawkins from Staffordshire is suing Scottish Provident under the terms of his £400,000 critical illness policy. Basically, his medical advisers believe his illness is insured whereas Scottish Providents’ medical advisers disagree. If Mr Hawkins wins his case, the press will have a field day and the critical illness insurers will suffer further bad press it can ill afford.
Another summons, filed recently in the High Court, highlights the problem when an insurance company believes that the claimant mislead them on his or her original application form. Our understanding is that if an applicant misleads or leaves out relevant information, this amounts to obtaining insurance cover on false pretences. The High Court summons relates to Thomas Welch from north London who is suing Scottish Provident for £206,800 which includes interest. The problem goes back to 2000 when, a few years after starting his critical illness policy, it was confirmed that Mr Welch had testicular cancer. The insurer refused the claim because of “non-disclosure saying that Mr Welch had not been honest about his smoking habit. He admits that he did smoke earlier in his life but is insistent that he had long since stopped when he applied for the insurance. As such, Mr Welch claims that he did honestly complete the application. We suppose that the case will centre upon whether Mr Welch accurately answered the questions about smoking. Most insurance companies define “a smoker” as a person who has smoked or otherwise taken nicotine products within the previous 5 years. If Mr Welch had smoked during those years, he would have had to answer “yes” to that sort of question and his insurance premium would have been as much as 65% more than he would have been charged as a non-smoker. We speculate that his lawyers may argue that either he did not smoke during the period in question or he omitted the smoking information by simple oversight and that his past smoking was not relevant to his testicular cancer. Interesting issues. We shall follow the case and let you know the outcome.
Mr Hawkins case illustrates the problems that can arise if insurance documents imprecisely define an illness or when the technical diagnosis of an illness leaves scope for medical experts to disagree. Both issues are entirely outside the policyholders control at a most difficult time for them and their families and we can well appreciate their anguish. The long-term answer must lie in improving the medical definitions within the policy. The probability is that this will lead to increasing the technical medical jargon which the man in the street would find difficult to understand - but that must be preferable compared to what Mr Hawkins is going through.
The other court case must stand as a clear reminder to all that insurance applications must always be 100% accurate and completed in good faith. We recognise that this may still leave room for dispute (and Mr Welch’s case may be a case in point), but if an applicant fails to accurately complete the forms, they are taking the significant risk that any subsequent claim will be rejected.
Rightly or wrongly, the press have a track record of giving the insurance industry a hard time, casting them as heartless big business. This reinforces the public’s impression that insurance companies are not to be trusted and especially it seems, with regard to critical illness insurance. This view is bolstered by the fact that around 20-25% of critical illness claims are rejected (the rejection rate does vary between insurers). This issue is something that insurance companies must get to grips with - it is bad for their clients and bad for the development of their business.
This is a crying shame. 1 in 6 women and 1 in 5 men will be diagnosed with a critical illness before their normal retirement age* and as such, critical illness insurance can greatly protect the finances of those unfortunate enough to be diagnosed.
(* Source: Munich Re.)
Tuesday, April 21st, 2009
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