The principles of insurance are demonstrated to good effect in group personal accident cover, but do brokers know? Colin Toppin explains
With a great deal of interest in the group personal accident market today, product development has become perhaps more of a revolution than evolution, with insurers constantly battling for perceived supremacy on their product offerings.
Beneath this hive of activity sometimes lies a loss of message regarding the fundamental covers of a benefit-based product covering death, capital and weekly benefits following accidental bodily injury.
The basic principles of insurance serve as an established criterion against which you can stress-test today’s covers to find out if insurers still have the basics right, or whether you need to investigate deeper.
Insurable interest refers to the legal right to insure, arising out of a financial relationship between the policyholder and the subject matter.
In relation to group personal accident cover, the policy-holder (usually the employer) is required to have a financial relationship with the subject matter (the employee) such that if an insured event occurs (being accidental bodily injury), the policyholder is financially disadvantaged.
Such interest must exist when the policy is taken out. This means that the majority of employer group personal accident policies pay claims to the employer, who can then decide how to use the funds.
Group personal accident policies exist which do not at first appear to meet this test. For example, policies covering the lives of club members or volunteers do not carry sufficient insurable interest on the part of the club/charity itself – they need to be specifically set up to pay claims directly to the insured persons themselves.
These types of policies are categorised as commercial group or retail under insurance conduct of business rules.
Another example is in relation to business travel policies. The question of insurable interest is raised when the employer seeks the inclusion of pure holiday travel for employees under the firm’s corporate policy.
Should policies exist where there is a clear absence of insurable interest that is recognised at law, a policy is illegal, void and unenforceable. Insurers, brokers and their clients must work together to ensure that this is considered, particularly when analysing the policy’s numerous extensions regarding what they cover and who they pay claims to.
Indemnity refers to the financial compensation, sufficient to place the insured in the same financial position after a loss as he enjoyed before the loss.
Personal accident policies are perhaps the clearest example of non-indemnity contracts – they do not seek to put the policyholder in the same financial position as immediately prior to the loss – they are classed as benefits based covers which pay a defined financial sum in the event of a claim as a form of compensation for injury.
Cover ranges from death benefits through to the loss of part of the fingers, and disablement resulting in the inability to perform one’s occupation. There are few debates regarding the amount of compensation due in the claims arena, and minimal legal costs in the absence of needing to prove negligence, therefore claims are settled efficiently and quickly.
The principle of subrogation allows an insurer, having indemnified a policyholder, to pursue any right of action available to the policyholder which may reduce the insurer’s loss.
In this sense, it fits perfectly with the principle of indemnity in not allowing the policyholder to receive payments from several sources which would then leave him in a financially better position after the claim. To this end, insurers will, in the policyholder’s name, take action to seek to recover their outlay from other sources.
However, in the case of a personal accident policy (non-indemnity), an insurer cannot recover its outlay by claiming back from a third party’s insurance company because the personal accident claim will have been paid on a benefits basis (a compensatory sum) rather than on an indemnity basis.
Consequently, personal accident policies do not carry subrogation clauses.
When an insurer has paid a full indemnity, the policyholder could in theory seek to claim under other policies covering the same loss. Such practice would clearly leave the policyholder in a better financial position than he enjoyed before the loss.
Where other policies exist that cover the same subject matter, insurers will seek to only pay their rateable proportion of any claim.
As personal accident policies are non-indemnity contracts, they do not feature a contribution clause so it is permissible for several separate policies to cover the same life, provided insurable interest on the part of the policyholder exists.
Contribution clauses often feature on travel policies in relation to sections other than personal accident.
Proximate cause is the dominant cause which sets in motion a train of events bringing about a loss, without the intervention of another source. This principle is applied to personal accident no differently to other classes of insurance.
Personal accident claims for death can necessitate difficult and emotional investigation to establish whether an accident was the cause of death or whether the cause of death was due to another source – for example, a heart attack at the wheel of a car in a road traffic accident.
The utmost good faith principle refers to a duty to disclose all material facts relevant to the risk. The proposer is the only party in possession of the full facts regarding the risk, but the underwriter must use his underwriting process to ensure that material information is clearly asked for and acted on.
As group personal accident is regarded as an ancillary cover by some, insurers today seek to make trading as simple as possible. Proposal forms are often dispensed with and the business may be traded purely upon broker presentations.
This is fine provided that the policy is issued in such a manner that the disclosure of all relevant facts is contractually tied down.
Statements of fact and phone-based trading are now common in the group personal accident arena whereby the proposer is sometimes not required to sign and return anything.
Again, this is fine provided the sales process is robust and records are retained to evidence the basis of the contract before a claim is debated.
So, it appears that group personal accident and business travel as insurance classes measure up well against the principles of insurance, but with some of the complex policy wordings and numerous extensions in the market today, the devil is always in the detail.
When did you last review what you offer to your customers?
‘ Colin Toppin is accident and health manager at Allianz Commercial