Recent stories in the press have again lambasted the insurers over critical illness insurance. The core problem is that a
critical illness claim is not as straightforward as, for example, a claim under life insurance. With life insurance it's going
to be hard for the insurance company to argue that you're not dead!
By their very nature, critical illness claims are much more complicated. The insurer will need to satisfy itself that the
claim is validated in three key areas before it meets the claim: -
Has the illness been correctly diagnosed?
Is the confirmed illness included in the schedule of insured critical illnesses covered by the policy?
Did the policyholder fully disclose their medical history and current state of health on their original application form?
On the first point, it's obviously in the policyholder's interest to verify the medical diagnosis - so there's rarely ever any
conflict between the insurance company and the policyholder on that issue. It's the next two areas which the insurer
needs to validate, where conflicts seem arise.
With constant development in the medical knowledge, from time to time there can be some situations where validation
falls into a grey area – a policyholder will argue that their specific illness is insured whereas the insurer will argue that
it isn't. Insurance companies are aware of this problem and they often change the wording in their policies in an
attempt to clarify the scope of the cover and eliminate areas for dispute. Nevertheless, disputes do happen all too
frequently and sparks fly when a policyholder thinks his illness is covered but the insurer disagrees.
A case in point comes before the Courts shortly. Mr Hawkins from Staffordshire is suing Scottish Provident for ?
400,000 under the terms of his critical illness policy. Basically, his medical advisers believe his illness is insured
whereas the insurers' medical advisers disagree. If the Court find in favour of Mr Hawkins the press will have a field
day - and the critical illness insurers will suffer further bad press they can sorely afford.
Another summons, filed recently in the High Court and again involving Scottish Provident, highlights the problem when
an insurer considers that a claimant mislead them on his or her original application form. Our understanding is that if
an applicant omits relevant information or provides misleading information on their application from, this amounts to
obtaining insurance on false pretences. This summons has been issued on behalf of Thomas Welch from London who
is suing Scottish Provident for ?206,800. The issue goes back to 2000 when, a few years after first starting his critical
illness policy, Mr Welch received confirmation that he was suffering from testicular cancer. The insurer refused the
claim because of “non-disclosure alleging that Mr Welch had not been honest about his smoking habit. He does admit
that he did smoke earlier in his life but is resolute in saying that he had long since given up when he applied for critical
illness insurance. As such, Mr Welch believes that he did complete the application honestly.
We assume that the case will centre upon whether Mr Welch accurately answered the smoking questions on his
application. Most insurers define “a smoker” as someone who has smoked, or has otherwise used, nicotine products
within the previous 5 years. (Some insurance companies adopt a 1year cut off.) If Mr Welch had indeed smoked during
the specified years, he would have been obliged to disclose such information on the application and the insurer would
have priced his insurance accordingly. In this context, it is relevant to note that smokers are charged as much as 65%
more for critical illness over than non-smokers. We anticipate that Mr Welch's lawyers will argue either that he did not
smoke during the period in question or he omitted the smoking information by pure oversight and in any event, his past
smoking is not irrelevant to his testicular cancer. Interesting issues and we'll let you know the outcome.
Mr Hawkins case is fundamentally different. It illustrates the problems that can arise if policy documents imprecisely
describe an illness or if the technical diagnosis of an illness provides the scope for medical professionals to disagree.
Either way the issues are entirely outside the policyholders control at a distressing time for them and their families and
we must appreciate their anguish. The long-term solution must lie in improving the medical definitions within the
policy. It is probable that this will result in more medical jargon that the average man in the street will find difficult to
understand - but perhaps that is preferable to what Mr Hawkins is going through.
Mr Welch's court case must stand as a clear reminder to everybody that applications for insurance must always be
totally accurate and completed in good faith. We recognise that in some cases this may still leave room for dispute
(and Mr Welch's case may be an example), but if an applicant fails to complete the forms accurately, they are taking
the great risk and any claim they make could be rejected.
Rightly or wrongly, the newspapers have a history of giving the insurance companies a hard time, casting them as
heartless big business. This serves to reinforce the public's feeling that insurance companies are devious and not to be
trusted - especially it seems, in respect of critical illness insurance. This view is reinforced by the fact that around 20-
25% of critical illness claims are rejected (although this rejection rate does vary between insurers). This issue is
something that insurers must come to grips with – it's bad for clients and undermines confidence in insurance - and
that must be bad for the development of the insurance industry.
In fact to put no finer point on it, it's a tragedy. As many as 1 in 6 women and 1 in 5 men will be diagnosed with a
critical illness before their normal retirement age*. As such, critical illness insurance is vastly important for the
protection of family finances. The problems we have highlighted are obviously contributing to a situation where almost
everybody needs critical illness insurance, but fewer and fewer of us are taking it up.
(* Source: Munich Re.)
Article Source: http://www.Free-Articles-Zone.com-By Michael Challiner
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