Critical illness Insurance. Insurers under fire
Recent press coverage has again lambasted the insurance industry overcritical illness insurance. The underlying problem is that a critical
illness claim is not as straightforward as, for example, a claim undercar or life insurance. With car insurance it's patently clear whether or
not you've had an accident - the damage is there to be seen andrepaired. And with life insurance it's going to be hard for the insurer
to argue that you're not dead!
By their very nature, critical illness claims are far more complicated.The insurers will need to satisfy itself that the claim is valid in
three primary areas before it pays out: -
It's clearly in the policyholder's interest to check that the medicaldiagnosis is correct - so there's rarely ever any conflict between the
policyholder and the insurance company on that issue. It's the other twoareas which require validation where conflicts sometimes arise.
Critical Illness Cover
With constant research and development in the medical field there cansometimes be some illnesses where validation falls into a grey area - it
can be argued that an illness is insured and it can be argued that itisn't. Insurance companies are aware of these problems and they
frequently revise the wording on policies in an attempt to clarify theextent of the cover and eliminate scope for dispute. Nevertheless,
disputes are relatively common and sparks fly when the policyholderthinks he is insured but the insurer disagrees. This is illustrated by a
case that comes before the Courts shortly. Mr Hawkins from Staffordshireis suing Scottish Provident under the terms of his £400,000 critical
illness policy. Basically, his medical advisers believe his illness isinsured whereas Scottish Providents' medical advisers disagree. If Mr
Hawkins wins his case, the press will have a field day and the criticalillness insurers will suffer further bad press it can ill afford.
Another summons, filed recently in the High Court, highlights theproblem when an insurance company believes that the claimant mislead
them on his or her original application form. Our understanding is thatif an applicant misleads or leaves out relevant information, this
amounts to obtaining insurance cover on false pretences. The High Courtsummons relates to Thomas Welch from north London who is suing Scottish
Provident for £206,800 which includes interest. The problem goes back to2000 when, a few years after starting his critical illness policy, it
was confirmed that Mr Welch had testicular cancer. The insurer refusedthe claim because of "non-disclosure saying that Mr Welch had not been
honest about his smoking habit. He admits that he did smoke earlier inhis life but is insistent that he had long since stopped when he applied
for the insurance. As such, Mr Welch claims that he did honestlycomplete the application. We suppose that the case will centre upon
whether Mr Welch accurately answered the questions about smoking. Mostinsurance companies define "a smoker" as a person who has smoked or
otherwise taken nicotine products within the previous 5 years. If MrWelch had smoked during those years, he would have had to answer "yes"
to that sort of question and his insurance premium would have been asmuch as 65% more than he would have been charged as a non-smoker. We
speculate that his lawyers may argue that either he did not smoke duringthe period in question or he omitted the smoking information by simple
oversight and that his past smoking was not relevant to his testicularcancer. Interesting issues. We shall follow the case and let you know
Mr Hawkins case illustrates the problems that can arise if insurancedocuments imprecisely define an illness or when the technical diagnosis
of an illness leaves scope for medical experts to disagree. Both issuesare entirely outside the policyholders control at a most difficult time
for them and their families and we can well appreciate their anguish.The long-term answer must lie in improving the medical definitions
within the policy. The probability is that this will lead to increasingthe technical medical jargon which the man in the street would find
difficult to understand - but that must be preferable compared to whatMr Hawkins is going through.
The other court case must stand as a clear reminder to all thatinsurance applications must always be 100% accurate and completed in
good faith. We recognise that this may still leave room for dispute (andMr Welch's case may be a case in point), but if an applicant fails to
accurately complete the forms, they are taking the significant risk thatany subsequent claim will be rejected.
Rightly or wrongly, the press have a track record of giving theinsurance industry a hard time, casting them as heartless big business.
This reinforces the public's impression that insurance companies are notto be trusted and especially it seems, with regard to critical illness
insurance. This view is bolstered by the fact that around 20-25% ofcritical illness claims are rejected (the rejection rate does vary
between insurers). This issue is something that insurance companies mustget to grips with - it is bad for their clients and bad for the
development of their business.
This is a crying shame. 1 in 6 women and 1 in 5 men will be diagnosedwith a critical illness before their normal retirement age* and as such,
critical illness insurance can greatly protect the finances of thoseunfortunate enough to be diagnosed.
(* Source: Munich Re.)
Michael writes for Brokers Online who offer life insurance coverand most UK financial services including car insurance.Visit our finance blog for useful tips on uk finance
Written By: Michael ChallinerCopyright: 2005
Contact Email: Michael@andromedawebs.co.ukContact Phone: 01477 535919
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