All companies look to assess life claims promptly and efficiently, yet delays do occur, mainly due to probate. Alex Isted looks at an initiative to solve this problem
The vast majority of life claims will prove to be valid. The management of any claim will be driven by the initial response to the receipt of a claim and the expectations set to the claimant at that time. With life claims there is a clear expectation on the part of the claimant that the claim will be met and settled quickly. This expectation is generally merited since the basis of a claim is usually very straightforward.
The ABI has established a Working Party whose brief is to consider ways to help the life claims process. The main focus is to improve this process so that claim proceeds can be received as early as possible. Clearly any delay in the payment of the proceeds to the beneficiary can add to their distress. These delays can happen, for example, where there are issues with probate. If payments are not received by a bereaved person in the early weeks after the death of a next of kin, then there may be short-term financial hardship.
The industry is therefore considering approaches which would lead to a smoother process with life claim settlements, particularly for those who do not have complex financial circumstances. In particular, the focus here is on single life claims since with joint life business there is usually someone who is clearly shown as the recipient of the sum assured on death.
In doing this there are clear potential ‘win-wins' for the life insurance industry, especially in putting over a customer focused message in difficult times.
How does probate come into this?
The potential issues surrounding probate are, unsurprisingly, often not considered until the need arises. Where death occurs and an estate is left this has to be dealt with to meet legal requirements. An estate can be made up of anything of value.
What does this mean in respect of a claim under a life insurance policy? Well, if a life assured dies under a single life policy then, if the policy has not been assigned or is not in trust, proceeds are payable to the deceased's estate. Title to the estate lies with the legal personal representative of the deceased. This can usually be shown by producing a Grant of Representation (in England, usually either a Grant of Probate where there is a valid will, or a Grant of Letters of Administration where there is no will).
Although a Grant of Probate is usually issued within a month from when the application papers are sent to the Probate Registry, this process does not always run smoothly. Some will take longer. Gathering the information in assessing the size of an estate may take three months or more. Waiting for probate to be granted can extend the time it takes to pay out life claims, especially for single life claims.
Immediate financial costs of death?
These are difficult to state for all the individual variations which can occur, but the following give an idea of some of these:
■ At September 2009 (Mintel Survey) costs associated with funerals were £7,098. This is expected to rise by another third over the next five years. The cost of a funeral in Britain has risen by 42% over the last five years (Independent, September 2009).
■ The average weekly spend for a household in the UK: £471.00 (this includes food, clothing, and transport).
■ Mortgages: £57.20pw
■ Council tax: £25.90pw
These are not insubstantial costs (and will probably include others) and if payment of a sum assured under a life policy is delayed because of the lack of probate, the scale of the short-term financial problem is evident.
Way Forward? - The Principle of Indemnity
Unfortunately, but understandably, insurers are usually unable to pay proceeds in the absence of a Grant of Probate, except for relatively low sums assured.
However, life companies will always look at these issues sympathetically. Although an indemnity approach is already used by most, if not all, life assurers in some shape or form, it may be beneficial to consider introducing an approach across the industry so that claimants can expect good and consistent market practice where probate is awaited.
What could an indemnity approach look like? Well, we can start by largely adapting practices that a number of companies already use. For example, where companies do make payments without probate this has commonly been subject to certain caveats alongside completion of a Form of Indemnity by the claimant.
These caveats are needed since there can be circumstances, for example where the deceased had divorced and remarried, perhaps leaving children from both relationships, when the issue as to who should benefit from the proceeds may become more complex. Insurers therefore clearly want to minimise the risk of either a fraudulent claim or mistakenly making a double payment under a claim.
It is recognised that there is a risk, by using an indemnity to pay a claim, a company may pay the wrong person and face a claim from a second person. However, experience across the UK suggests that those who already follow an indemnity approach have reported only a handful of cases over recent years where this has occurred.
It is believed this risk can be reduced if precautionary steps are taken by a life office. Some examples of these could include requirements that the claimant should forward the original will and confirm it is the latest one; that they are not aware of any other claimants; and also sign a declaration that they are legally entitled to the policy proceeds.
What sort of figure can be considered when making a payment under a life policy where probate has not been produced? Here we enter the realms of commerciality and it would be unfair and unrealistic to expect the industry to follow a standard sum. However, it is hoped that in most cases it should be sufficient to meet the short-term needs mentioned earlier. This figure might be in the range of £20,000 to £50,000.
It is possible that the same principle of indemnity could also be applied by making partial payments on larger sums assured (for example, £50,000 on a £250,000 policy). By doing this insurers would still meet the initial financial needs of the potential recipients of the policyholder's estate. Applying a partial payment approach also means the principle of indemnity could, potentially, be applied to every policy. Companies may also need to consider adaptations to systems to enable partial payments.
It should be emphasised that these comments only look at one aspect of the payment process and do not look at issues such as contentious claims which may involve non-disclosure.
Benefits
So there are a number of benefits with the indemnity approach in meeting the issues of the absence of probate:
■ It is a relatively simple approach and, importantly, also a sympathetic one.
■ Indemnity is a process already followed by many life assurers.
■ It minimises the potential financial concerns of claimants in the early weeks and months after death.
■ It can be introduced immediately on all existing policies.
■ Subject to establishing a number of basic criteria an insurer can swiftly make a payment to a claimant where probate is not available. The amount of the payment would primarily be designed to alleviate the financial distress which would otherwise be suffered.
■ Although there may be some concerns within the industry over the possibility of double-payment, across the market it is hoped that the application of appropriate caveats will manage this risk.
■ By applying the same principle of indemnity to making partial payments on larger sums assured, insurers would still meet the short-term financial needs of most claimants.
■ By applying a partial payment approach this means an indemnity approach could be applied to any policy.
In discussing this issue we have only focused on one solution - indemnity. However, this is not the only way forward. Trusts can be used to avoid disputes as to who should benefit, but may not be a simple approach for all. The ABI Working Party is looking at a further option which may be an even better solution with new business involving a ‘nomination' process. With this, an applicant can simply nominate who they wish to receive the proceeds upon claim; this may speed up the process even more… but this is for another article.
Alex Isted is head of claims management UK and Ireland at Munich Re
