In the thousands of words that have been written about the canoe man John
Darwin and his wife Anne, none have touched on another striking feature of
this story. This has been one of those rare occasions when a life insurance
company has been on the receiving end of public sympathy. As police begin
the fight to recover the Darwin's assets in Panama, insurers - so often cast
as money-grabbing villains in ordinary people's lives - have found
themselves in the role of victim.
This may not be entirely unwelcome to the insurance industry, which in recent
years has suffered disastrous PR from a series of horror stories in which
people have been declined life insurance or critical illness payments for
what seem bizarre and arbitrary reasons. Such hostility can foster a climate
in which people feel it is “fair game” to fiddle an insurance claim. Recent
cases damaged public confidence so much that many asked whether there is any
point taking out life insurance or illness cover when companies can “change
the goalposts” the minute that you try to claim.
David Webb thinks not. He will never to take out life insurance again after
his insurer refused to pay out four years ago when his wife Sarah, 29, was
killed by a driver going at 90 mph the wrong way down the A1.
In the weeks after her death, when Webb was trying to look after their baby
daughter while grieving himself, the company phoned to say it would not be
paying out the sum of £200,000. It had checked her medical records and found
within her maternity papers a ticked box indicating that she was a smoker.
When they had taken out the policy in 2001 there was a question in the form
which asked “Have you used any tobacco products in the past 12 months?” She
had said no because she had given up smoking while trying to become pregnant
(the couple's daughter is now 6). Webb had said yes, that he was a smoker.
Whether Sarah had smoked or not was completely irrelevant to the cause of
her death but the insurer said that important information had been withheld
and it was entitled not to pay out. It was only when a solicitor fought
Webb's case that he managed, two and a half years later, to get half the
amount - £100,000 - in an out of court settlement on a non-liability basis.
“It's a sick game that [insurance companies] play,” says Webb, an electrician,
from Hertfordshire. “They get you when you are down and not in a position
where you want to fight. If we had been trying to deceive them, then I would
have lied about me being a smoker. It is ridiculous,” he says. He has now
lost all faith in the industry. “I won't take out a life insurance policy
ever again. I've paid off my mortgage and that is my daughter's security. I
would say to everybody with a policy, check it very, very carefully.”
Sometimes customers do deliberately downplay how much they drink, smoke or
weigh in the hope of getting a cheaper premium - all factors that may
invalidate a policy. Norwich Union recently revealed the results of a survey
in which it invited 5,000 of its policyholders to review their initial
application to see if important medical information had been withheld. In
one in 14 cases it had. But often the omission is a genuine oversight (many
insurance forms can be considered vague at best) or a client may not
remember, say, a minor surgical procedure 20 years ago but that a insurer
might seize on as a means to wriggle out of paying.
Controversial cases include Robin Elliott, who was killed in October 2005
during a work trip to Wakefield. Elliott, 57, who worked for the Ministry of
Defence, was hit by a car after a night drinking with friends. When his wife
Dee tried to claim on three accident insurance policies, she was declined by
all of them because her husband had been over the drink drive alcohol limit
when he died. This was despite the fact that he was a pedestrian.
And when Angela Stubbs, 36, who suffered a heart attack in 2003 and was unable
to work, tried to claim for £53,000 on her critical illness policy she was
refused as she had failed to disclose a bout of depression suffered within
two years of signing up. Though the two illnesses were totally unrelated,
the company argued that by not disclosing the depression she had invalidated
her contract. She fought the case for three years and eventually won a
payout. There is also Helen Kasher, a 42-year-old Leeds speech and language
therapist, who developed breast cancer and had to give up work. Her critical
illness claim was rejected because she had failed to disclose two occasions
where she had suffered post-natal depression, even though they were
irrelevant to the cancer.
A random vox pop I did to gauge people's trust of life insurance companies
threw up quotes such as: “They want you to get confused and fill in the
answers wrongly so they can catch you out later”; “They swab dead people's
mouths to see if they've smoked in the past year” (this is not true,
apparently); “You should ring up and inform them of every single illness you
have on a month to month basis”; “You may as well take your money and set
fire to it.”
Kevin Carr, of LifeSearch, which offers free insurance advice, says that
across the industry around one in six claims for critical illness is
declined, either because of non-disclosure or because the illness doesn't
meet the criteria, though for some companies the decline figure is lower. Of
life insurance claims, 1 per cent are declined, which may seem small but
Carr says that since there are one million life policies sold, this means
that 1,000 will not pay out. Some 70 per cent of cases taken to the
Financial Ombudsman are ruled in favour of the customer - meaning that, in
the adjudicator's view, the customer had been declined unfairly. Or as the
man on the street might say, the insurers were trying it on. For
non-disclosure to be relevant it has to constitute a “material difference”,
that is, it would have led to an increase in the premium or to cover being
denied. “We are in a very price competitive market,” he adds, “but it is not
always advisable to go for the cheapest policy. The cheaper companies will
often be harsher when it comes to a claim and more expensive companies can
often be a better bet.”
But here's the good news. The number of claims that are being paid is rising
amid greater transparency within the industry and a desire to combat public
distrust. The total number of complaints made to the ombudsman about life or
critical illness claims is actually very small, but the worst stories make
headlines because the subject is so emotive.
Recently the Association of British Insurance companies (ABI) moved to boost
public confidence by announcing that it will pay more claims for critical
illness, income protection and life insurance where medical information has
not been disclosed, unless the customer deliberately withheld it - a crucial
shift towards giving customers the benefit of the doubt.
Where relevant information has not been provided but there has been no
deliberate intention to deceive, it said that insurers will pay customers a
fair sum, reflecting risk and premiums paid - in other words a proportion of
the claim. Bernie Hickman, chair of the ABI committee behind this move and
managing director of protection at Legal & General, says that it “goes
beyond existing guidance and should bring a consistency of best practice
from all insurers, reducing the number of declined protection claims”. He
said: “It has become clear to the industry that existing guidance on claims
needed to be reconsidered in light of emerging best practice within the
industry.”
There are now three different levels of non-disclosure: “innocent” - when the
person is considered to have been acting honestly and could not reasonably
have been expected to know the information was relevant to the insurer
(claims may be paid in full in this instance); “negligent” - when the
insurer feels that the applicant did not apply reasonable care to the
disclosure of information on the forms, so it will pay only part of the
claim; and “deliberate, or without any care” - where the consumer has
deliberately made a false statement on an application form, which would lead
to the claim being declined, the policy voided and premiums returned.
We all know now into which category the Darwins would fall. And it is perhaps
the final irony that in the absence of a body and having submitted a pack of
lies, the Darwins' insurance company paid up without a quibble.
KEY QUESTIONS AND ANSWERS
Should we inform insurers of every serious illness/medical treatment that
we have?
Norwich Union. “No one needs to tell us about any ongoing issues with
health after the policy commenced. If they made a mistake or omitted
something from their original form, they may wish to get in touch with us to
check.”
Legal and General: “If people have filled out a form to the best of
their knowledge and ability and have been accurate, then there is no need to
contact the insurer. There is no need to continually inform the company of
changes to health. Once the policy starts, it doesn't matter what happens to
health, presuming that all the relevant information was given up front.”
For how long does a smoker need to have stopped to make them, in the eyes
of an underwriter, a non-smoker?
Norwich Union: “In the case of Norwich Union it's 12 months. We ask the
applicant if they have used tobacco products in the last 12 months, so even
a “social” smoker should be clear on this.
L&G: “Twelve months. Customers should never be tempted to hide
their smoker status to get cheaper premiums, though.”
Is it normal for insurance companies to reject claims because someone had
been drinking alcohol?
Norwich Union: All claims are considered on a case-by-case basis
L&G: We wouldn't decline a claim just because someone was drunk.
There have been cases of people being refused life insurance when they
admitted to taking anti-depressants. Where do you stand?
Norwich Union: “Applicants need to tell us about their medical history
only at the time of application. If a person has been prescribed
anti-depressants for the first time after they have taken out a policy, this
should not alter their policy. If a person has had a history of depressive
illness or has taken anti-depressants before application (even if just for a
short period, e.g, for post-natal depression) this should be disclosed. This
may result in an exclusion or a weighting being applied to their policy from
the outset.”
L&G: “Nobody needs to inform us about changes to their health once
they are covered. We need to know about depression and prescribed medication
up front to assess the application. However, people shouldn't be scared to
mention it in case they are refused cover. All cases are different, but it
is more likely that people might have to pay increased premiums or have
certain exclusions applied to their policies than being refused cover
altogether.”
