claims: a consumer’s perspective - pacific life re

Claims: A Consumer’s Perspective —Pacific Life Re2018 Irish consumer research

When does a consumer think about protection insurance claims?The most likely answer is: very rarely; when they are in the unfortunate

position of having to make one.

Alternatively, they might have seen headlines like these:

When protection insurers, and more specifically, the work of the claims department, comes to public attention, it’s often when the media are shining the spotlight on a dissatisfied customer; typically an individual who feels let down or cheated by their insurer.

With this in mind, and to understand a little 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 1,000 adults in the Republic of Ireland to find out.

“Devastated widower in tears as he

reveals family may lose home after

beloved wife’s death”

“Insurers’ doctors deny ANOTHER life insurance claim from a dying customer”

“Scales of injustice? The wrong

weight on a form meant one grieving

widow received NOTHING from

her insurer”

Claims: A

Consumer’s Perspective —

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Do Consumers Trust Insurers to Pay Claims?

Besides the cost of cover, it’s safe to assume that this is one of 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?”

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 7% of our respondents believed that this is the case.

1% 4% 5% 4% 5%

16%13% 14%

22%

10%7%

0%

5%

10%

15%

20%

25%

0 1-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100

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Why Are Protection Claims Declined?

It’s disappointing that consumers think so many claims are declined, 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?”

We might 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, 42% 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 on their website from satisfied customers.

25%

17% 16%

9% 8% 7% 6% 6% 5%2%

0%

5%

10%

15%

20%

25%

30%

Claims: A


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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:

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?”

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.

77%

53%45% 43%

21%

14%

31%37%

26%

40%

9% 16% 18%30%

39%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Car crash Skin cancer Heart attack Suicide Lung cancer

Shouldn't have to pay any of the claimShould pay a part of the claimShould pay the whole of the claim

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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 outlier, as many consumers believe that insurers simply do not pay out in these circumstances.

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When is a Smoker Not a Smoker?

We’ve looked at attitudes towards misrepresentation where an individual fails to disclose that they are a smoker, but what 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 many cigarettes, and how often, a person smokes.

We asked: “Which of the following would you class as a smoker?”

There are some surprising results here, perhaps the most unexpected being that

32% thought a person who smokes 3 cigarettes every day is a non-smoker.

100%

68%

29%

11%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Daily - more than3 cigarettes

Daily - up to 3cigarettes

Occasionalcigarette or cigarwhen out socially(e.g. 5 a week)

Used to smokecigarettes, but

now using an e-cigarette only

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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, ex-smoker or non-smoker.

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?

100%

37%

6% 1%

67%

31%

11%

80%

35%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Daily - more than 3cigarettes

Daily - up to 3cigarettes

Occasional cigaretteor cigar when outsocially (e.g. 5 a

week)

Used to smokecigarettes, but nowusing an e-cigarette

only

Current smoker

Ex-smoker

Have never smoked

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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...?”

It’s interesting to note that nearly 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 more worrying that only around half of those surveyed felt that their own medical history and alcohol consumption should be taken into

consideration. Only 22% appear to appreciate the relevance of their own family history and the impact this might have on their own health and long-term risk.

69%

55% 53%

42%

22%

12% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Smoking habits

Lifestyle

Personal health

Age

Family health

Salary

Postcode

Gender

Claims: A


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Claims: A


Pacific Life Re

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?”

We had a broad range of responses to this question, suggesting that ‘terminal’ means different things to different people.

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.

19%

28% 29%

14%11%

0%

5%

10%

15%

20%

25%

30%

35%

Up to 3 monthsto live

More than 3months but lessthan 6 months

to live


to live


to live

Longer than 24months to live

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With this in mind, we asked consumers: “Life insurance policies can pay 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?”

We found that 87% of those surveyed felt that an accelerated life claim payment would be reasonable where life expectancy is less than 12 months; 66% 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. 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.

30%35%

21%

8%5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Up to 3 months More than 3 monthsbut less than 6

More than 6 monthsbut less than 12

More than 12months but less

than 24

Longer than 24months

Claims: A


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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?”

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.

In a previous survey we commissioned, consumers were asked whether they ‘would be prepared to pay more for their own life insurance to cover the cost of some claims being paid out to people who did not provide important facts when their policy was taken out’... 76% said ‘no’.

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.

78%

22%Reduce theamount paid

Pay claim in full

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For more information about Pacific Life Re please visit our website www.pacificlifere.com, follow us on LinkedIn or contact —

James Tait Head of Protection Pacific Life Re | Europe T: +44 (0)20 7709 1814 E: [email protected]

Pacific Life Re Limited (No. 825110) 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 202620). 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.

©2018 Pacific Life Re Limited. All rights reserved.

PLRECCR0918

Ian Rowe Director, Claims Pacific Life Re | Europe T: +44 (0)20 7709 1853 E: [email protected]

claims: a consumer’s perspective - pacific life re

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