Claims: A Consumer s Perspective. Pacific Life Re 2018 UK consumer research

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1 Claims: A Consumer s Perspective Pacific Life Re 2018 UK consumer research

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3 When does a consumer think about protection insurance claims? Typically, the answer is: very rarely; except perhaps, when they are in the unfortunate position of having to make one. Alternatively, they might have seen headlines like these: Insurers refuse to pay out to mother who spent two weeks in an induced coma with pheumonia, sepsis, swine flu and multiple organ failures because she wasn t ill enough Father of three is refused 65,000 payout by health insurer beacuse he had a cardiac arrest, not a heart attack No one knows how my wife died, but I m left with two children and a policy that won t pay out Unfortunately for insurers, in particular, claims departments, the media tends to shine the spotlight on disatisfied customers, as that makes for better, more gripping headlines. They typically focus on an individual who feels let down by their insurer, rather than one who is happy with the service they ve received. With this in mind, and to understand more about consumer perceptions of protection cover, we wanted to know what consumers really think about insurers. Do they think that claims are routinely declined? Do they have any idea why some claims are declined? How do they think an insurer should respond when a customer has provided them with inaccurate or incorrect information? In February this year, we commissioned a survey of 2,000 adults in the UK to find out. 03

4 04 Do Consumers Trust Insurers to Pay Claims? It s safe to assume that the cost of cover and the liklihood of the claim being paid are the most important factors for consumers. When it comes to the moment of truth, how likely is it that their claim will get paid? We asked: What percentage of life insurance claims do you think are paid? % 20% 15% 24% 10% 16% 11% 5% 0% 1% 4% % 5% 6% 13% 12% 6% Whether a consumer trusts an insurer to pay out is a clear priority when it comes to purchasing insurance. However, it probably comes as no surprise that consumers in general have very little insight into how many claims are actually paid by the life insurance industry. The perception falls a long way short of the true figures. 83% of consumers believe that no more than 80% of life claims are paid Nearly a quarter of our respondents think that only 70%-80% of claims are paid out In reality, most insurers report that well in excess of 90% of their life claims are paid. Only 6% of our respondents believed that this is the case.

5 Why Are Protection Claims Declined? As the previous graph shows, the majority of consumers think that a large preportion of claims are, so we wanted to know if they have any concept of why this does sometimes happen. We asked: Why do you think insurers sometimes decline life insurance claims? 25% 20% 15% 10% 24% 19% 5% 0% 13% 9% 9% 7% 6% 6% 5% 3% Seeing as there appears to be a faily low level of trust in insurers paying out on claims, we would have expected that small print or loopholes would feature heavily here, however our findings show consumers perceptions of why claims are declined in a slightly better light. In fact, 43% think that claims are declined due to some form of misrepresentation by the customer, either lying on forms or not disclosing relevant information. Whilst this is promising, there is still more that could be done to promote positive claims stories; for example, insurers could publish case studies or client testimonials from satisfied customers, on their website. 05

6 06 Do Insurers Treat Misrepresentation Fairly? Having established that consumers understand that misrepresentation occurs, and that this might result in a declined claim, we wanted to know whether or not they think that insurers are fair in the way they treat misrepresentation. We described the following scenario: A person who applies for life insurance doesn t tell the insurer they are a smoker. Had they done so, they would have had to pay twice as much for their life insurance cover. A year after they bought the insurance, they make a claim. We asked: For each of the following causes of death, how much, if anything, do you think it would be reasonable for the insurer to pay? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 14% 23% 26% 15% 46% 46% 28% 35% 25% 71% 32% 49% 39% 29% 21% Car Crash Skin Cancer Heart attack Suicide Lung cancer They shouldn't have to pay any of the claim They should pay part of the claim They should pay the whole claim

7 It s reasonable to make a couple of assumptions about how consumers expect misrepresentation to be treated: 1. Most of the consumers in our sample would expect a penalty to be imposed where the claim is for lung cancer. This suggests that where there s a clearly established link between the information that was not disclosed (smoking) and the cause of death, the penalty for the misrepresentation is more easily understood. 2. Where that link is not so clearly established, consumers typically expect insurers to respond more favourably. The responses recorded where the death was the result of a car crash are not at all surprising. Most consumers would expect the claim to be paid in full. Based on our market experience both in the UK and Ireland, most insurers would limit their claims investigation in these circumstances and a full payment is the most likely outcome. It s a little more difficult to interpret the response where the cause of death is a heart attack. We know that smoking is a risk factor for heart disease, so why does more than twice the number of consumers expect a full payment when the cause of death is a heart attack as opposed to lung cancer? Perhaps there is less public awareness of the risks of smoking in relation to heart attacks, than there is of the link between smoking and lung cancer, in spite of numerous public health awareness campaigns highlighting the effect smoking has on the general health of the population. Suicide is something of an anomaly, as many consumers believe that insurers simply do not pay out in these circumstances. 07

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9 When is a Smoker Not a Smoker? Our research has looked at attitudes towards misrepresentation where an individual fails to disclose that they are a smoker, but what really is a smoker? It seems a very obvious question, with a yes or no answer. Life insurance applications always include a very clearly worded question on this and there s rarely any ambiguity. Our consumer research suggests that people have very different ideas about what makes someone a smoker, driven by how often a person smokes cigarettes. We asked: Which of the following would you class as a smoker? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100% Daily - more than 3 cigarettes 74% Daily up to 3 cigarettes 38% Occasional cigarette or cigar when out socially (e.g. 5 per week) 13% Used to smoke cigarettes but now using an e- cigarette only There are some surprising results here, perhaps the most unexpected being that 26% thought a person who smokes 3 cigarettes every day is a nonsmoker. 09

10 10 We looked into this in greater depth, to see if there was any difference between how people think, depending on whether they themselves are a smoker, exsmoker or non-smoker. 100% 90% 80% 70% 100% 73% 85% Current smoker Ex-smoker Never Smoked 60% 50% 40% 30% 20% 10% 0% Daily - more than 3 cigarettes 39% Daily up to 3 cigarettes 48% 33% 18% 8% 11% 1% Occasional cigarette or cigar when out socially (e.g. 5 per week) Used to smoke cigarettes but now using an e- cigarette only Smokers appear to have a much higher benchmark in terms of how many cigarettes you have to smoke every day to be classified as a smoker. Might this attitude influence how a person interprets and answers a question about smoking on a life insurance application? Having seen the interesting results from asking consumers what they think makes someone a smoker, we wanted to investigate how many consumers consider themselves smokers. We asked: Are you currently a smoker, or have you previously smoked? 1% 28% 16% 55% Have never smoked Ex-smoker Current smoker Prefer not to say

11 It s encouraging to see that 83% of consumers have either never smoked or are an ex-smoker, and we expect to see this increase over time, as consumers become more aware of the effect smoking will have on their health. We wanted to look at this in more detail and break the findings down by age. Interestingly, 67% of 18 to 24 year olds said that they have never smoked; compared to 50% of year olds. This possibly suggests a change in attitude towards smoking within the younger generation; however it is important to note that almost two in five consumers within the 18 to 24 age range do not believe that e-cigarette usage makes you a smoker. What Factors Drive the Cost of Cover? We ve seen that consumers have some expectation of a financial penalty if certain facts are not disclosed. We wanted to know if they understand how their own disclosures affect how much they pay for life cover. We asked: Do you think life insurers should be able to charge different amounts depending on any of the following...? 80% 70% 60% 50% 40% 30% 20% 71% 61% 58% 52% Smoking habits Lifestyle Personal health Age Family health Salary Postcode Gender None of these 10% 0% 28% 10% 9% 16% It s interesting to note that over 70% would expect to pay more for their life cover if they were a smoker, when compared to those who would still expect the insurer to pay a claim in full if a person fails to disclose that they are a smoker. It s perhaps a little worrying that only about half of those surveyed felt that their own medical history and lifestyle (i.e. alcohol consumption) should be taken into consideration. Only 28% appear to appreciate the relevance of their own family history and the impact this might have on their own health and long-term risk. 11

12 12 When do we Pay Life Claims Early? Assessing claims based on a predicted outcome is vastly different to assessing claims where the insured event has already taken place. When you also consider the emotive nature of many Terminal Illness claims, it s easy to see that these can be very challenging cases for claims assessors. The industry definition of Terminal Illness is based on a 12 month life expectancy but this has no relevance to any medical definition or clinical practice. We wanted to know what consumers understand the word terminal to mean, in terms of life expectancy. We asked: What length of time do you consider as being terminally ill? 35% 30% 25% 20% 15% 10% 5% 13% 24% 35% 18% 11% 0% Up to 3 months to live More than 3 months but less than 6 months to live More than 6 months but less than 12 months to live More than 12 months but less than 24 months to live Longer than 24 months to live We had a broad range of responses to this question, suggesting that terminal means different things to different people. It appears that almost a quarter (24%) believe a Terminal Illness to be having less than 6 months to live. The Terminal Illness definition was introduced to provide peace of mind for Terminal Illness policyholders with a very short life expectancy, and to allow them time to ensure that their financial affairs are in order before they die.

13 out before death if the policyholder has a very short life expectancy (to get their affairs in order). In this situation, at what point is it reasonable for an insurer to make the payment? 35% 30% 25% With this in mind, we asked consumers: Life insurance policies can pay 20% 34% 15% 30% 24% 10% 5% 0% 7% Up to 3 months More than 3 months but less than 6 More than 6 months but less than 12 More than 12 months but less than 24 5% More than 24 months We found that 88% of those surveyed felt that an accelerated life claim payment would be reasonable where life expectancy is less than 12 months; 64% indicated less than 6 months. In the UK, Terminal Illness claims have increased to the point where, for some insurers, Terminal Illness accounts for more than 30% of all life claims. The vast majority of Terminal Illness claims are for cancer, where for many diagnoses, outcomes are improving and published data is quickly becoming outdated. Outcomes for incurable neurological conditions like Motor Neurone Disease and Parkinson s are even more difficult to predict and many specialists acknowledge that it s very difficult to predict life expectancy beyond 6 months. A reasonable case can be made for a review of the current Terminal Illness definition that would reduce the life expectancy requirement to 6 months. From our research, it appears that this would be more in-line with consumer expectations. 13

14 14 Some Final Thoughts... We ve seen that consumers understand some of the concepts that influence our claims decisions and broadly, would expect there to be a penalty where misrepresentation has been discovered. We asked: If a policyholder has been found to have not disclosed important information at the point of claim, what should the insurer do? 21% Reduce amount paid out Pay full claim 79% We ve also seen that there is a gap between how they expect insurers to deal with misrepresentation and what happens in practice. Consumers trust is vital to our industry, but do we build more trust by simply paying more claims? We regularly meet with claims teams from insurers accross the industry in Ireland and it s very clear that they strive to treat claimants fairly. However, they also recognise that they have a responsibility to all of their customers. As mentioned earlier, declined claims are statistically rare and insurers typically only apply penalties where significant and material misrepresentation is identified. Bridging the gap between consumer perceptions and the reality of how many claims are paid remains a challenge. It s perhaps unrealistic to expect much press attention when it comes to positive claim outcomes but insurers might find benefit in highlighting their claims experience during the sales and application process.

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16 For more information about Pacific Life Re please visit our website follow us on LinkedIn or contact James Tait Head of Protection Pacific Life Re Europe T: +44 (0) E: Ian Rowe Director, Claims Pacific Life Re Europe T: +44 (0) E: Pacific Life Re Limited (No ) is registered in England and Wales and has its registered office at Tower Bridge House, St Katharine s Way, London, E1W 1BA. Pacific Life Re Limited is authorised and regulated by the Financial Conduct Authority and Prudential Regulatory Authority in the United Kingdom (Reference Number ). The material contained in this booklet is for information purposes only. Pacific Life Re gives no assurance as to the completeness or accuracy of such material and accepts no responsibility for loss occasioned to any person acting or refraining from acting on the basis of such material Pacific Life Re Limited. All rights reserved. PLRECCR0918