Considering the claims process

Advisers who focus entirely on price when recommending protection policies are clearly not paying due attention to treating customers fairly (TCF) requirements and one of the factors that should be receiving attention is an insurer’s claims paying prowess.

Furthermore, assessing a claims paying capability involves far more than just glancing at statistics showing relative payout percentages. It is somewhat misleading to compare claims payout ratios from insurers who have only been in the market for a few years with those from players with much larger and longer-standing books. The definitions of some conditions have changed dramatically during the last five years and a single declined claim can obviously have a disproportionately higher impact on the payout rate of a small book than of a large one.

Insurers' overall reputations and experience in dealing with claims should therefore be major issues during the advice giving process, as should be their ability to offer added value services at the claims stage. Indeed, many claimants who have used Bright Grey's innovative Helping Hand service, which offers contact with a personal nurse adviser and a range of other facilities, have reported that the emotional support they received meant as much to them as their financial payout.

We discussed the importance of taking into account an insurer's claims process with two intermediaries with very different levels of experience in handling claims: John Chapman, managing director of national specialist intermediary Torquil Clark, and Henrietta Oxlade, an adviser with city based IFA Bond Wealth Management.

“I've been incredibly lucky, I've never had a claim”

Q: What feedback have you had from clients on the importance of the claims process?

John Chapman: We handle a lot of claims and the feedback we get from consumers is that when they've had a claim handled well it always counts very positively and will make them reluctant to switch insurer in the future. You should never underestimate the importance of a sympathetic ear when someone is suffering from ill health, but you don't tend to see the positive stories in the newspapers as much as the negative ones because they are rarely considered to constitute news.

Henrietta Oxlade: None, because I have never had a claim. This is despite the fact that I have advised on protection for over 20 years and handled around five cases a month on average. I guess the situation is partly explained by the fact that most of my clients are still relatively young, in their 30s and 40s, and partly because I have just been incredibly lucky.

Q: How important do you consider paying attention to a protection insurer's claims process to be from a treating customers fairly (TCF) perspective?

John Chapman: It is very important. At the end of the day the regulator is going to want to see evidence that you did far more than just compare premiums.

Henrietta Oxlade: Looking well beyond the premium, from the whole process of applications and potential claims to company ethos and service standards, is in my opinion a cornerstone of complying with TCF.

Q: How does claims paying actually figure in your advice giving process?

Henrietta Oxlade: When the data is available I certainly take into account claims history and, for that reason, will never recommend accident, sickness and unemployment (ASU) cover because it has a very low payout rate. With income protection I tend to recommend companies with no exclusions and a good claims ethos and good payout history as far as can be gleaned from information which is publicly available or fed back by industry sources. With critical illness cover, on the other hand, I focus more on what is covered and on policy definitions than on claims. Claims don't seem to be an issue with life cover, although it is important to ensure that policies are written in trust, when appropriate, so that you don’t have to wait for probate for payouts to be made.

John Chapman: We look at various aspects of insurers' culture and processes, including their claims records and attitudes towards claims, and the claims record is one of the key performance indicators we review with our main providers on a quarterly basis. If any claims haven't been paid out during that quarter we try to understand the reasons why and we also look at the time periods between when claims are made and when they are paid out. If an insurer is lacking we would drop them temporarily, and have certainly done so in the past. When insurers offer the RED ARC care advisory service or other added value features at the claims stage it definitely counts positively.

Q: What more could insurers do to improve their claims processes?

Henrietta Oxlade: I would like them to provide me with even more information about claims. In product brochures you never seem to see any detailed information about how the company's claims process actually works. You just see information about the actual policy.