The Mail on Sunday contained an article on 25 June, relating to a claim under a critical illness policy, which carried the hallmarks of a textbook example where the proposer failed to identify occasional headaches as the start of a brain tumour.
In the case, the insurer appears to have made only the most superficial inquiries before issuing the policy and collecting the premiums. It was only at claim time that it decided to get into gear and ask some relevant questions. The judge did not miss this point and was critical of this practice by the insurer. Interestingly, this was a case where the ombudsman had found for the insurer, but the Scottish Court of Session thought differently.
I have to say that this approach by insurers is becoming all too common. It seems to me that modern insurers will take on risks with the minimum of information on the basis that only 20% of policies result in claims in any one year. It is only when a claim occurs that insurers decide to make the sort of inquiries they should have made before going on cover. I think the official term is "underwriting at claim time"; unofficially, it might be better named as "failing the customer".
In my own field, motor insurance, MID deadlines and other considerations dictate that motor policies must be processed as
soon as possible. In order to achieve this, insurers appear to be indifferent to checking documentation such as licences, security certificates and NCD proofs before acceptance, and only ask to see them when a claim occurs.
If the claim is two or three years down the line and the policyholder cannot find the document, the insurer voids the policy, leaving the policyholder high and dry. In many cases these days, the proposer has a foreign licence and, by the time the claim occurs, his entitlement has expired, leaving confusion as to whether there is an indemnity issue or not.
We can all guess which way the insurers will go in these cases. In the same way, we have insurers taking at face value cases they would have surveyed a few years ago and only initiate "surveys" after a claim is reported.
From an expense ratio aspect, these practices seem to make balance-sheet sense, but where does that leave the poor customer who has answered all the questions as honestly as he knows how to, yet finds his policy is worthless?
Roy Rodger
Insurance Training & Consultancy
