If claim statistics are not a fair way of assessing insurers on an individual basis, what is the other option?
I was flicking through the trade press today and was left bemused by an article on the FTAdviser.com website. The article which coincides with UK insurers preparing to publish their latest claim statistics for life, critical illness and income protection claims in the new year.
I cannot disagree that there is a clear misunderstanding by consumers as to the number of protection claims paid out by UK insurers. If you were to ask a random selection of public as to what they believe the payout percentage is for each type of protection product, the results would show estimated figures that are half the real figures.
The article in The FTAdviser featured Friends Life head of underwriting Chris Pollard who argued payout figures are not helpful. Pollard told the FTAdviser: “Purely looking at claim figures doesn’t tell the full story of what has really happened. If one company pays 99 per cent of life assurance claims and another pays 95 per cent, what is to be gained from ordering them based on the percentage?
It is fair to raise the point that claim stats give the impression that one company will deliver a better outcome for the insured’s loved one than another based solely on payout percentages. But, when you consider how hard industry experts have pushed to get insurers to publish their claims data, surely they are not going to go back to the dark days of hiding behind walls of silence?
It is bad enough with closed-book insurers who don’t publish their statistics. For all we know they could be the worst insurers in the country paying out 65 per cent of claims. As they don’t publish data we will never know unless someone is willing to go through the numbers and calculate their stats based on information in the public domain.
Pollard went on to tell the FTAdviser: “What, in my opinion, is not helpful is if these outcomes are presented in a format that implies one result is automatically better than another, or worse still, that they are actually used within recommendation modelling.”
It’s worth mentioning that Friends Life don’t have the best claim statistic in the industry. Last year for example Friends Life paid out 99 per cent of claims on life insurance policies, 91 per cent for critical illness claims and 86 per cent for income protection, with their IP being one of the lowest in the industry.
The ABI publishes data every year showing the average industry pay out rates for protection products compiled from insurance company submissions. The data available for 2013, showed average payouts of 99.9 per cent on whole of life policies, 92 per cent on critical illness and 91 per cent on income protection.
Mr Pollard told the FTAdviser.com that it may be telling you is that one provider applies exclusions, such as for suicide, whereas the other might not, or that a policy may have expired before the death occurred, or that it might have lapsed but a claim was still submitted.
“These are the kind of variables that can make a purely numerical comparison too simplistic, and we have not yet begun to consider the more complicated products, such as critical illness and income protection.”
He argued that UK life insurance providers are unique within the global insurance market in self reporting claim success rates at a provider level.
“Now we are in this position it’s unlikely the publication of claim statistics is going to stop. But what we need to work on, as a whole industry, is trying to ensure they are not used to beat each other over the head.
“What, in my opinion, is not helpful is if these outcomes are presented in a format that implies one result is automatically better than another, or worse still, that they are actually used within recommendation modelling.”
I agree in part with Mr Pollard’s argument that any headline figure can be used to an insurers advantage and be used to ‘prove’ they are the best provider in the industry. A few months ago I had this very conversation about claim statistics and how you breakdown the figures and compare them fairly with other insurers.
Take a large non-mutual protection insurer who has 10,000 income protection claims during 2013, with 93 per cent of all claims paid. Now compare this to a mutual insurer with 100 claims who only paid out 90 per cent of claims. Which insurance company has the best pay out stats?
Mr Pollard is not against greater transparency, and so he shouldn’t. Even if every insurer paid out 100 per cent of claims there will always be a public perception that these types of policies don’t pay out. Taking away headline figures won’t change perception but maybe they should expand these figure further.
A pay out figure of 100% may get your attention, but I have always argued that it is the whole package that needs to be taken into account when choosing a protection insurer. How many of the claims refused are overturned by the ombudsman? Are there any customer ratings available on how efficient an insurer handles a claim? The type of policies available, exclusions and definitions used by each insurer are just as important.
When I bought my income protection, critical illness and life insurance policies through an adviser I cannot remember ever being shown the pay out figures at that time. If my my memory is correct, I was shown a list in the order of price from the cheapest the most expensive policy available.
The industry since I became involved seemed to be out for themselves, but the Income Protection Task Force latest campaign – Seven Families – is trying to highlight the difference these policies can make to your life if you are struck down by illness or accident.
It’s joined up thinking for the greater good that should be expanded on. To be honest, all insurers in the protection industry should be pretty much the same. With advances in underwriting and clearer and simpler policies they all should be publishing the same payout stats.
The difference between them should be down to customer service and what extras they provide to distinguish themselves from their competitors. Why can’t all insurers come together to fund an advertising campaign to promote the industry and hammer home the real average claim stats?
Hopefully Seven Families will be the start into a new way of thinking by the industry.