Revealing research suggests life insurers are saying no to high claims - and says advisers have a key role to play in stemming this trend.
The study from IFA support services firm threesixty suggests the average rejected life claim value in the year to 31 March was £70,121, compared with a paid claim average of £60,172.
The research also found 6.65% of life claims were rejected, with the best and worst rejection rates ranging from 0% to 25% for individual insurers.
The overwhelming reason for rejections was non-disclosure, according to threesixty, with 99.59% of life claim rejections based on non-disclosure.
David Ingram, partner at threesixty, says: “Rejected claims are a big issue.
“Our figures demonstrate it is absolutely essential that IFAs advise their clients to disclose all medical information at the point of application.
“Clients who take out life policies are looking for peace of mind and expect those policies to pay out in the event of a claim. Any potential problems should be pointed out to them at outset as part of good business practice, reinforced by the Treating Customers Fairly requirements.”
Higher claims tend to be rejected because they are more likely to be investigated in greater detail by insurers because of the potential loss, he says.
Fraudulent cases, and those involving suicide, are also more likely to be for higher, rather than lower, claims.
One further reason is claims made early in policy terms are more likely to be investigated and more recently initiated policies tend to have higher sums assured than long established plans.
In the case of critical illness policies, the difference between rejected and paid claims was much narrower. The average rejected claim value was £60,635.76 against a paid claim average of £64,856.19.
This is most likely because critical illness policies do not have the same extensive spread of sums assured seen in life policies.
However, a higher percentage - 16.89% - of critical illness claims was rejected. Non-disclosure accounted for 58.06% of rejections, while the balance was made up almost entirely of cases where the conditions were not covered by the policies.
“The majority of critical illness claims that do not match policy definitions are a result of clients not understanding the definitions,” Ingram says.
“This situation is likely to get even worse because changes to critical illness definitions this month by the Association of British Insurers will add to the confusion for both advisers and their clients.”
If you would like to comment on this story or speak to its author, telephone Simon Read on 0207 034 2680.IFAonline
Three year strategic review
Impact on markets
Has run Cautious Managed fund since 2011
What’s right – not what sells
Richards fires back at committee report