Cracking the declined claims problem

It was good to see the Financial Services Authority coming out with a balanced report on the sale of critical illness cover recently. Huge steps have been taken to improve the way CI cover is sold but there\'s still room for improvement.

The review focussed on the advice and sales process so this is an issue that affects advisers. The FSA visited 42 firms, primarily mortgage and financial advisers but also banks, building societies and insurers. It also undertook mystery shopping across 51 firms.

There are many positive outcomes from the report, such as the recognition that advisers are looking at CI as part of clients’ wider protection needs and assessing their needs and aspirations before coming up with recommendations. Interestingly, contrary to the FSA’s financial promotions report last year, it found no evidence of scaremongering and little evidence of pressure selling.

The Association of British Insurers’ new statement of best practice and its guidance on the clarity of application forms were also reported on positively. It was great to see the industry getting recognition for its proactive approach to raising standards. But the FSA says there are areas where insurers and advisers can do better.

For advisers, three areas stand out. The first is to ensure that clients understand the cover they are taking out. Although the concept of CI cover is simple, the details contain complexities. The ABI statement which insurers must adopt by April 2007 will help and the FSA is also calling for insurers to help advisers explain the product to clients. Plain English guides and simplifying product design would be a good place to start.

The second is for advisers to ensure clients understand why products are suited to their needs and that this should be clearly documented in the Statement of Demands and Needs.

The third point, and the most important, is that advisers should ensure clients understand the importance of full disclosure so policies pay out as expected if the worst happens.

The industry has already taken a number of steps to help avoid claims being declined due to non-disclosure and advisers have a key role to play in reinforcing this message. Be particularly careful if you transfer details from a paper application to an online one and remind your client that they must tell the insurer if their circumstances change after they fill in the form but before the cover starts.

The FSA review confirmed the need for CI cover and that advisers selling it are doing so responsibly. It also highlighted areas to be improved – specifically, reducing non- disclosure and making sure clients understand what they are buying and why. Insurers and advisers working together can crack the thorny issue of declined claims.

Nick Kirwan is protection marketing director at Scottish Widows