Truth will out
Paul Robertson:Just how important is non-disclosure? Askingaround, the highest estimate I have got from anyprovider on non-disclosure was around 11%. Is itreally a pressing issue for the industry?
Steve Maybury:I have seen figures higher than 11%, so to me,that shows that it is quite important, thecustomer does not always understand what theyhave got to go through to buy one of our productsand then potentially get the claim paid at theend of it.
Nick Kirwan:I would say from an adviser’s perspective, theperception is probably greater than reality. So itgives quite a negative perception about nondisclosurethat actually prevents future claimsand gives a bad experience.
Peter Le Beau:You might look at something like 25% of criticalillness (CI) claims being turned down, in part dueto non-disclosure, it actually damages theindustry quite significantly.
Roger Edwards:I think it is also worth saying that before westart getting into the conversation about thenon-disclosure of say medical evidence andmedical history, certainly on paper applicationforms we are still not seeing full disclosures ofbasic information like height and weight. It isalmost as if sometimes people don’t know theanswer, they will just put the application form inanyway and we have to phone them to fi nd outbasic information. Obviously online applicationsolves that because they can’t proceed unless thefield is filled in. But certainly on the paper side,you are still seeing non-disclosure of even the most basic information. And that is probably notdeliberate, it is possibly just lazy.
Tom Baigrie:For me it is more fundamental. The claim is ourproduct. That is actually what we sell. If the claimis not met, we have not got a product, we havetaken people’s money under false pretences. So itis absolutely 100% important that when ithappens to you, it happens right. And reducingnon-disclosure can improve our record.
Iain Mallon:I totally agree, we have just completed researchwith a sample of over 1,000 individuals andfound that 7% of all of those interviewedadmitted to purposely not disclosing somethingto an insurance company. Of knowing nondisclosures,13% went to alcohol, 9% to weightand 8% smoking. So no surprises there. Butinterestingly, reasons behind non-disclosurevaried for different groups. Over half of men,54%, did not disclose because they thought thatthey were going to be charged a higher premium.But interestingly, the main female reason fornon-disclosure, at 65%, was embarrassment.
Keith Richards:Is it the adviser who is embarrassed to ask thequestion or is it the client who is embarrassed toanswer it? And is there a difference betweenwhether they are asked over the phone or whetherthey are asked face-to-face?
Iain Mallon:It did not differentiate, but this was a simplequestion, they said they were too embarrassed toreveal personal information, that was the specificwording. And then another one, 71% of Scotswere too embarrassed to reveal personal information. But then 76% in the south east weretoo embarrassed to disclose. We as an industryhave an obligation to show that we can be trustedby those who are embarrassed. We have a salesprocess that puts them in a situation where theycan feel less embarrassed so they feel more ableto disclose.
Paul Robertson:What can be done to encourage disclosure? Apartfrom maybe using medical people to telephone,which would reduce to a certain extent theembarrassment, what in concrete terms can bedone to reduce non-disclosure?
Nick Kirwan:I think one things is perhaps helping people to doit in the right environment. There is someevidence that when people do it on their own, intheir own home, that actually they are morehonest... it is a bit faceless on the computer, butpeople do seem to be better at disclosing online.
Iain Mallon:If we accept most of our business goes throughintermediaries, the first environment to startwith is their training. But I think going beyondthat, you then have to look at the environments asthere are levels of non-disclosure in differentchannels. We have a sample of over 10,000application forms where we are seeing a 5% nondisclosurelevel with paper, 3% level of nondisclosurewith electronic, and less than 1%non-disclosure with tele-underwriting. Thatdoesn’t mean that tele-underwriting is the onlysolution, but I would recommend that anyonewith any kind of medical history whatsoevershould go through a tele-underwriting interview.
Paul Robertson:Is tele-underwriting definitely the right way forthe industry to go? It seems to be moving fromwholesale over to the use of telephone interview.Is it the only method on the table?
Tom Baigrie:Tele-underwriting is the way forward because itmeets a lot of the key criteria that you weretalking about a moment ago. The first is theenvironment, the person is down the phone sothere is no personal contact. In terms of howquestions are positioned, warnings that have tobe given to reduce the client’s natural tendency toeconomise in embarrassing truths can all begiven, they can be recorded, the client can be toldthat is happening. Some very interesting researchwas put to me some years ago by a competitorthat proved to me pretty clearly that the lastperson on earth you want to do your interviewing for medical questions is the person who sold thepolicy, a good seller of policies makes a very badinterviewer. So I do think you have got to separateit from the point-of-sale and logically telephone isthe way to do that.
Nick Kirwan:I wonder if perhaps people could try other thingsas well? For example would it be possible to sella policy to someone and then send them a securelink so they can log on at home and complete themedical information online, privately, and intheir own time?
Peter Le Beau:That is certainly an excellent idea but it is aboutcreating the understanding on the part of theclient that insurance companies are not out totrip them up, that they are not there to try andfi nd ways to avoid claims. Over the years, someproviders have been very poor at doing this. Wehad a situation a few years ago where a lot ofclaims were being turned down in very dubiouscircumstances which did the industry no favoursat all. And of course that gets into the consumerpress and then exacerbates the problem. So Ithink there needs to be an ongoing campaign ofinformation explaining what insurance companiesare trying to do and what the job is of theadviser and the tele-underwriter.
Roger Edwards:The reputation of the industry tends to rest onthis whole debate, whether it is tele-underwritingor online or whatever. On the one hand, Ithink the industry has a poor reputation – thatwe actively try to fi nd ways to decline claims,because that is what Watchdog and The DailyMail would have you believe. On the other sideof the coin, I was interested in what Iain saidabout some people not disclosing because theyare embarrassed but then also people notdisclosing because actually they know that ifthey do, the price is going to go up. This is atwo-way street. How can we get people to behonest? How can we get people to understandthat ultimately there is a price to pay if theydon’t tell the truth? So I think there is moregoing on here than just how can we stamp outnon-disclosure.
Nick Kirwan:It is not just a case of truth and not truth thoughis it? I think it is also a question of under-disclosure as well as non-disclosure. You know,where people give you a little bit of somethingand not necessarily the whole thing? Somepeople, I always get the sense, think of it as ratherlike an exam, they have got to get through this toget their policy.
Keith Richards:I agree. Yet advisers are as different as theclients as they serve. Some are very confi dentasking questions and have a very professionalfocus and don’t get embarrassed, others can bevisibly seen beginning to feel awkward whenthey ask questions. So I think the problem isconsistency in underwriting in the way thatconsumers are asked the medical questions andinformation that the insurer feels is vital inassessing the risk and the premium. It is verycomplex but you will only improve consumerperception if we start to have mechanisms wherethe right person asks the right questions.
Iain Mallon:There are two points. In one set you have 7% ofcustomers admitting that they have not disclosedan item. But then we have less than 1% teleunderwritingin non-disclosure. So putting thewhole population into the right environmentsignifi cantly reduces non-disclosure. While therewill always be a group of individuals who willmaybe mislead insurance companies, what wehave got to explain is that if we actually treatthem correctly, that is less than 1% of ourpopulation rather than a larger part of thepopulation.
Lee Lovett:What percentage of the population are answeringquestions honestly but giving the incorrectanswer? For instance are you a smoker? Peoplesay no, because they gave up last week.
Tom Baigrie:The question about under-disclosure, or gettingsmoking wrong, is a question of interviewertraining. So we don’t ask anything like do yousmoke? We ask, “have you used tobacco productsin the last 12 months?”So if you ask the question clearly and you areproperly trained, and the answer is beingrecorded, the client gets it right or rather makesvery few mistakes. For me a 1% failure rate getsround almost every problem. No matter how youlook at our problems, if we are only failing one in100 times on this issue, well…
Nick Kirwan:There are some people who are setting out to lieto us. They are a very small number but they arein that 1%, no matter how good the process is, ifsomebody knows if they don’t tell you they smokethey are going to get away with it then they aregoing to do that.
Tom Baigrie:And we have them on record telling a lie, that isan important factor.
Nick Kirwan:Yes. But to do that, you need to make quite a lotof mistakes. Let’s be clear, you say you are anon-smoker, you have got to get a quote on thewrong basis fi rst and you have got to input somedata to your adviser to say you are a nonsmokerfi rst, then you have got to tick the wrongbox, then you have got to get the acceptance on the wrong basis, you know it is not just onewrong tick.
Iain Mallon:We also ask questions about what customersthink and if they don’t trust us they have apropensity to actually non-disclose. We askedwhat individuals thought life companies woulddo. So for example, 50% thought we would ratethem on mild asthma and actually at Axa wewouldn’t. So this is just for our own kind ofview. 55% thought that there would be a severerating on mild blood pressure increases. As forabuse of a single drug excluding top categorydrugs in the last fi ve years, 48% of peoplethought that there would be a severe penalty onthat. So customers think that there are going tobe penalties where there won’t be. So as anindustry, we have to develop a level of trustwith the customer.
Peter Le Beau:It strikes me that if you put that information outinto an advert – you can abuse a drug and wewon’t rate you – that would help. But I have yetto see an advert like that. Maybe a book, aninformation leaflet that says why we need you totell the truth in your application, that sort ofthing, and which points out that we are lookingfor reasonable disclosure, that we would look topay the vast majority of claims but we needpeople to be fair. Maybe we do need to educateand maybe there is an information booklet herethat the whole industry could agree to. If itwould be interesting and accessible to people,maybe it would reassure them.
Tom Baigrie:I think the parallels with the general insuranceand the motor insurance industry are causing usgreat harm. For some reason the life insuranceindustry lost the consumer zeitgeist some yearsago and the motor insurance industry, I thinkperhaps the advent of Direct Line, took it overcompletely. Consumers now think of what we do,our type of insurance, as being pretty much likethat and they seem to apply similar standards ofbehaviour when they work through it. What wedo is totally different at every level. For one,commoditising it is frankly impossible becausewe are talking about individuals. The question ofadvice and tailoring a policy to the customer,equally people struggle with that whole conceptnow because they are used to just fi lling in a fewboxes and getting the insurance they want.
Peter Le Beau:One thing I wanted to mention was the sort ofattitude in the industry which I think haschanged over the last few years. I was veryuncomfortable about three years ago, I hadchaired a conference in London and we weretalking about what non-disclosure peopleconsidered material, reinsurers understandablywanted to make sure nothing was being missed.So you had this very difficult situation wherepeople went on fishing expeditions, got a lot ofmedical information in and went through it. Andwe had situations where people were saying, “weare not going to pay his claim because he died in acar crash but he had not told us that he had gotasthma.” The public relations consequences ofthis were absolutely disastrous. I think that theindustry has not done itself any favours in termsof the attitude that it has taken in the past.
Nick Kirwan:There is another comparison here with generalinsurance that it might be worth talking about.People generally don’t get this whole idea ofunrelated non-disclosure. You are not paying mybreast cancer claim because you didn’t discloseyour bad back, is alien to most people and theexpectations are sometimes set by generalinsurance where people make many more claimsand much more frequently and their experienceis set by those. Interestingly, in generalinsurance they have a code which says they arenot allowed to decline an unrelated incident,based on a breach of warranty. I suspect theconsumer’s expectations are a little bit driven bythat and yet in the life industry, we do still hangon to this unrelated non-disclosure whichworries me, because it is just counter intuitive.
Iain Mallon:There is not a simple solution but the industryloves having the one fix for everything and that isvery strange behaviour, but I do think that on thesmoking issue especially we cannot rely just on electronic processing, we must try to get thatdisclosure out.
Roger Edwards:I was recently involved in a futures workshopwhere we looked forward fi ve to 10 years, thatwithin that time frame every single protectionapplication, be it life, CI or whatever, will be teleunderwritten.And I mean the entire application.And obviously that would signifi cantly reducenon-disclosures. I think we will probably end upgoing that way and it will also take away from theadviser the responsibility for the disclosure whichis probably a good thing as well. But that is goingto be quite an expensive undertaking for theindustry, I just wonder if people think that this iswhere we are heading?
Tom Baigrie:I can tell you it does cost the industry and I cantell you the least the well capitalised sector of theindustry is bearing most of the cost of teleinterviewing,for example, distribution centres.That seems to me to be ridiculous as a way ofimproving the providers’ reputation, usingintermediaries’ ability to face the customerproperly and our skills in that area. And we areabsolutely materially improving the wholeindustry’s brand reputation by moving to a 1%issue rate.
Iain Mallon:Expenses are basically 15% of our book, ebusinessexpenses, sales and all that sort of stuff.We believe costs are outweighed by gains fromour reinsurers in getting better reinsurance.Therefore a very painful and strong launch ontele-underwriting, which was high risk at thetime, is a benefi t to us. We have intermediariesthat do 0% tele-underwriting with us andintermediaries that do 100% tele-underwritingwith us. So really the level of tele-underwriting isdictated by the distributor. About three years ago20% to 25% of intermediaries said that theywould use tele-underwriting. The new researchshowed 70% to 75% of intermediaries would bewilling to use tele-underwriting. But it is notaccepted in a wholesale way by the intermediaryand actually I think working on intermediariesregarding tele-underwriting – educating themabout the pros and cons, not just the pros, andreally positioning it as a major contribution – is aduty on the manufacturer.
Paul Robertson:Have the new Association of British Insurer (ABI)guidelines on non-disclosure that were introducedin January made a real difference to theway that claims have been paid? Has it broughtan attitude change among the industry?
Steve Maybury:Well, quoting some stats that we have got fromsome of our clients, we have defi nitely seen achange that more claims are being paid. Abouta couple of years ago, I think 25% of CI claimswere being declined, about half of those fornon-disclosure. That had gone down to 12% twoyears ago, better proposal forms probably madeit about 8% last year, something like that. Weare now seeing it down to the real low singlefi gures from some of the early stuff that we areseeing from our clients. We are down to about2% or 3% of claims being declined for nondisclosure.So early on I think there has beenquite a big change.
Lee Lovett:To reinforce that, from our perspective we areseeing only very serious cases voided, we areprobably seeing more proportionate settlementsthan would have been the case previously andwithout any numbers attached to it, probablymore non-disclosures categorised as payable thanwould have been the case before. So we havedefi nitely seen a change.
Tom Baigrie:We have taken a huge step forward here. I meanthe ABI initiative is, if these stats hold goodover time, a phenomenal success. Surely whatwe want to do is pay as many claims aspossible? The moment you start paying moreclaims, you put your premiums up and thewhole industry grows. That is how insuranceworks, it always strikes me as very odd that weare in a desperate attempt to do everything tominimise our claims level.Am I permitted a last word? The solution toall of these problems that we have just beentalking about now, in terms of communications,is for the industry to go onto the front foot.Until we are on the front foot and communicatingabout it, all of this victim talk that we havejust been indulging in will continue. You havegot to be out there, sticking your neck on theline and telling the truth as you see it. Someform of coordinated campaign does seem to meto be vital.
