IFAs and providers are calling for further clarification on whether proposals to introduce a ‘non-contestability' period into life insurance policies would apply to deliberate non-disclosures.
The Law Commission has suggested insurers should only be allowed to turn down a claim on the grounds of non-fraudulent non-disclosure if they prove the non-disclosure within three years of the policy being taken out.
Nick Kirwan, protection market director at Scottish Widows, says the proposal could help restore consumer confidence, particularly in the critical illness (CI) market, but concerns have been raised about how ‘non-fraudulent’ will be defined and measured.
Andy Milburn, IFA market manager at Royal Liver, states: “There are two types of non-disclosure – deliberate and non-deliberate – and it must be asked which the commission is trying to stop claims being turned down for. If a consumer has lied on their application form, why should providers have to pay the claim?”
Although the commission suggests the proposal would only apply to non-fraudulent non-disclosures, Milburn says it can be difficult to prove whether a consumer has deliberately not disclosed something, particularly if providers get a wet signature at the front-end of the application process.
He suggests a signature at the back-end would ensure consumers fully understand the impact of giving incorrect or incomplete information.
Roger Edwards, products director at Bright Grey, agrees it can be difficult to work out whether someone has acted dishonestly and he warns the proposal could cause a rise in CI premiums with honest people subsidising dishonest people.
“Premiums would rise because we could get people blatantly not disclosing and taking the risk they won’t get found out for three years. To fund this it would have an affect on premiums,” he adds.
Edwards has heard predictions that premiums could rise by 20%, but he believes because premiums are so cheap at the moment a 20% rise would be worth it in return for claims from honest people not being declined.
He states: “It could be one way to reduce the number of claims being declined for non-disclosure. Anything that does this is a good thing.”
But Edwards believes the proposal is just one of many things which could be done to rebuild trust in the protection industry and says it is not enough on its own.
“We also need clearer questions on application forms, which could effectively write out the possibility of non-disclosure, as well as clearer exclusions and definitions. I don’t believe on its own it would raise consumer confidence,” he says.
Bill Wells, IFA at Protect & Save, suggests the industry needs an independent assessor to determine whether unintentional non-disclosures would have made a difference to the original underwriting decision to provide cover or to provide it on ordinary rates.
He argues: “If claims are going to be waived through even when it becomes obvious that serious, rather than trivial, non-disclosure has taken place then it begs the question, why have an application form at all?”
But Simon Firmin, life and pensions adviser at Plan Insure Limited, is more favourable about the proposals and says any initiative to increase consumer confidence is to be applauded.
He points out the issue of non-disclosure is a growing problem in the industry and when it leads to declined claims it is a hindrance to consumers taking out CI.
Although there is a potential danger of consumers deliberately not disclosing information, Firmin says the chances of this happening are not as big as some people think.
He states: “Do you really think consumers would deliberately not disclose information? It is a big gamble because they could effectively waste three years of premiums. I think people take out cover for the right reasons and they try to give right and proper answers.”
He suggests there could be a case for a longer period than three years because the longer the period, the more careful consumers would be.
In addition, Firmin suggests if advisers know their customer it could prevent deliberate non-disclosures – if they know the customer well they should know if they are telling the truth.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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