Critical illness Cover

Critical illness Insurance. Insurers under fire

Recent press coverage has again lambasted the insurance industry over

critical illness insurance. The underlying problem is that a critical

illness claim is not as straightforward as, for example, a claim under

car 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 and

repaired. 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: -

  • Is the medical diagnosis correct?
  • Is the diagnosed illness included in the schedule of insured critical

    illnesses listed within the policy documents?
  • Did the policyholder fully disclose their state of health and medical

    history on their original application form?
  • It's clearly in the policyholder's interest to check that the medical

    diagnosis is correct - so there's rarely ever any conflict between the

    policyholder and the insurance company on that issue. It's the other two

    areas which require validation where conflicts sometimes arise.

    Critical Illness Cover

    With constant research and development in the medical field there can

    sometimes 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 it

    isn't. Insurance companies are aware of these problems and they

    frequently revise the wording on policies in an attempt to clarify the

    extent of the cover and eliminate scope for dispute. Nevertheless,

    disputes are relatively common and sparks fly when the policyholder

    thinks he is insured but the insurer disagrees. This is illustrated by a

    case that comes before the Courts shortly. Mr Hawkins from Staffordshire

    is suing Scottish Provident under the terms of his £400,000 critical

    illness policy. Basically, his medical advisers believe his illness is

    insured whereas Scottish Providents' medical advisers disagree. If Mr

    Hawkins wins his case, the press will have a field day and the critical

    illness insurers will suffer further bad press it can ill afford.

    Another summons, filed recently in the High Court, highlights the

    problem when an insurance company believes that the claimant mislead

    them on his or her original application form. Our understanding is that

    if an applicant misleads or leaves out relevant information, this

    amounts to obtaining insurance cover on false pretences. The High Court

    summons relates to Thomas Welch from north London who is suing Scottish

    Provident for £206,800 which includes interest. The problem goes back to

    2000 when, a few years after starting his critical illness policy, it

    was confirmed that Mr Welch had testicular cancer. The insurer refused

    the claim because of "non-disclosure saying that Mr Welch had not been

    honest about his smoking habit. He admits that he did smoke earlier in

    his life but is insistent that he had long since stopped when he applied

    for the insurance. As such, Mr Welch claims that he did honestly

    complete the application. We suppose that the case will centre upon

    whether Mr Welch accurately answered the questions about smoking. Most

    insurance companies define "a smoker" as a person who has smoked or

    otherwise taken nicotine products within the previous 5 years. If Mr

    Welch had smoked during those years, he would have had to answer "yes"

    to that sort of question and his insurance premium would have been as

    much 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 during

    the period in question or he omitted the smoking information by simple

    oversight and that his past smoking was not relevant to his testicular

    cancer. Interesting issues. We shall follow the case and let you know

    the outcome.

    Mr Hawkins case illustrates the problems that can arise if insurance

    documents imprecisely define an illness or when the technical diagnosis

    of an illness leaves scope for medical experts to disagree. Both issues

    are 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 increasing

    the technical medical jargon which the man in the street would find

    difficult to understand - but that must be preferable compared to what

    Mr Hawkins is going through.

    The other court case must stand as a clear reminder to all that

    insurance applications must always be 100% accurate and completed in

    good faith. We recognise that this may still leave room for dispute (and

    Mr 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 that

    any subsequent claim will be rejected.

    Rightly or wrongly, the press have a track record of giving the

    insurance industry a hard time, casting them as heartless big business.

    This reinforces the public's impression that insurance companies are not

    to be trusted and especially it seems, with regard to critical illness

    insurance. This view is bolstered by the fact that around 20-25% of

    critical illness claims are rejected (the rejection rate does vary

    between insurers). This issue is something that insurance companies must

    get 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 diagnosed

    with a critical illness before their normal retirement age* and as such,

    critical illness insurance can greatly protect the finances of those

    unfortunate enough to be diagnosed.

    (* Source: Munich Re.)

    Article Resources:


    Michael writes for Brokers Online who offer life insurance cover

    and most UK financial services including car

    .Visit our finance blog for useful tips on uk finance

    Written By: Michael Challiner

    Copyright: 2005

    Contact Email:

    Contact Phone: 01477 535919

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