Critical Illness Insurance – The Press are Giving Insurers a Hard Time

Recent news stories have once again criticized the insurance companies for not providing critical illness insurance. A critical illness claim is more complicated than a claim under life insurance. It will be difficult for an insurance company to claim that you are not dead with life insurance.

Critical illness claims can be more complex by their very nature. Before the insurer can approve the claim, it will have to verify that three areas are valid:

Is the illness correctly diagnosed?

Is the confirmed illness covered by the policy?

Are the applicant’s medical records and current health fully disclosed on their original application?

The first is that it is in the policyholder’s best interest to confirm the medical diagnosis. There’s seldom any conflict between the insurance company or the policyholder regarding this issue. The insurer must validate the following two areas, as these are where potential conflicts may arise.

There are times when validation can fall into a gray area. A policyholder might argue that their particular illness is covered, while the insurer may argue otherwise. Insurance companies know this and often modify the policy language to address it. However, disputes are not uncommon and can spark when an insured believes his illness is covered.

The Courts will soon hear a case like this. Scottish Provident is being sued by Mr Hawkins, Staffordshire, for PS400,000 in accordance with his critical illness policy. His medical advisors claim that his illness is covered, while the insurers’ advisers disagree. The Court will rule in favor of Mr Hawkins. This will give the media a lot to do and will cause further damage to critical illness insurers.

A summons was filed in the High Court recently, again involving Scottish Provisionnt. It highlights the problem when an insurance company considers that a claimant has misled them on their original application form. According to our understanding, if an applicant fails to provide the necessary information or gives misleading information on their application form, it amounts to applying for insurance under false pretences. This summons was issued for Thomas Welch, a London resident who is suing Scottish Provisionnt for PS206 800. This issue dates back to 2000, when Mr Welch was diagnosed with testicular cancer. “Non-disclosure” allegations that Mr Welch was not honest about his smoking habits led to the insurer refusing to pay the claim. Although he admits that he used to smoke in the past, he insists that he quit smoking when he applied critical illness insurance. Accordingly, Mr Welch believes he completed the application truthfully.

We believe that the case will center on whether Mr Welch correctly answered his smoking questions. The majority of insurers consider a smoker someone who has used nicotine products or smoked in the past 5 years. Some insurance companies have a 1-year cutoff. If Mr Welch had smoked in the years specified, he would have been required to disclose this information on his application. The insurer would have then priced his insurance accordingly. It is important to mention that smokers can be charged up to 65% more for critical illnesses than non-smokers. We expect Mr Welch’s attorneys to argue that he didn’t smoke during the time in question, or that he simply omitted the information out of pure oversight. In any case, his history of smoking is relevant to his testicular carcinoma. We’ll let the result of this interesting case.

The case of Mr Hawkins is very different. This case illustrates the difficulties that can result from policy documents not accurately describing an illness. The policyholders are unable to control the situation at an emotionally distressing time for their family. We must understand their pain. Long-term solutions must be found in improving the definitions of medical terms within the policy. This will likely lead to more medical jargon than the average person can understand. But that might be better than what Mr Hawkins is experiencing.

The court case of Mr Welch must serve as a reminder that insurance applications must be accurate and filled in good faith. We recognize that there may be disputes in certain cases, and Mr Welch’s case is one example. However, applicants who fail to fill out the forms correctly run the risk of losing their insurance claim.

The newspapers have a history giving insurance companies a difficult time. This reinforces the perception that insurance companies are deceitful and cannot be trusted, especially in relation to critical illness insurance. This is supported by the fact that 20-25% of critical illnesses claims are rejected (though this rejection rate can vary among insurers). Insurers must address this issue. It’s detrimental to clients and can undermine confidence in insurance. This will have a negative impact on the future development of the insurance industry.

It’s tragic, to put it another way. One in six women and one in five men will be diagnosed before they reach their normal retirement age with a serious illness. Critical illness insurance is vital for financial protection. These problems are clearly contributing to the situation that almost everyone needs critical illness insurance. However, fewer people are choosing to take it up.