Time to focus on misrepresentation

It feels as though Guardian has come of age with the publication of our first annual claims report. This shows claims paid in 2023 (which was our fifth comparable full year of trading). We’ve seen a positive reaction from advisers both to the overall numbers but also to the level of detail we went into regarding claims paid. Also – something which has certainly piqued advisers’ interest – the detail around the few we couldn’t pay.

This interest demonstrates that many advisers want to know the details, no doubt because it builds faith in their recommendations and their own firms’ processes. Transparency also helps indicate ways in which the industry could take this small number of declined claims and drive those numbers down further. Which raises an important issue for the protection sector as a whole – that of misrepresentation.

A signal on misrepresentation

Looking to our own claims report, in 2023 there were seven declined adult claims, all for critical illness cover. Just one was denied because it did not meet the definition, and another 6 due to misrepresentation. Admittedly, this is a small amount of data, yet it still gives us a reasonable frame with which to view and understand the situation.

Our misrepresented claims denied included a claim for a heart valve repair where the customer didn’t disclose a history of cardiac problems including tests and investigations before the policy started. Another customer had visited their surgery about a lump before applying for cover, and investigations were still ongoing. 2 others didn’t disclose ongoing investigations. In one case, the application would have been postponed until investigations were complete, the second revealed a tumour diagnosed before the application. Another customer had an existing benign brain tumour and wouldn’t have received cover. One customer had sought advice about a mole that had been changing shape before applying and didn’t disclose it on the application when asked. That knowledge would again have seen us postponing their application until investigations were complete. Finally with a claim for respiratory failure, the customer didn’t disclose their history of lung disease and pre-diabetes.

Common mistakes

We can see from this that some customers fall into the trap of misrepresentation especially, though not always, if they have ongoing investigations at the time of applying. In a couple of cases, we’d have required the customer to wait until things were clearer medically before offering cover, but that is unfortunately not an option where we have already received wrong or insufficient information.

Stressing that this is a snapshot, it does suggest that some customers may not understand the importance of fully disclosing details about their health by answering our questions accurately and that failing to do so may impact their claim.

So, how do we tackle this?

The provider’s approach

First it might be helpful to explain how most providers approach misrepresentation. For advisers wanting to get a better grip on this, you can familiarise yourself with the ABI code of practice – which we follow at Guardian – and how it categorises misrepresentation and the resulting outcomes.

The first is ‘innocent’, where a reasonable person would have considered the information not relevant when answering the application questions, and the claim is generally paid in full.

The next category is ‘careless’ where misrepresentation resulted from the failure to exercise reasonable care, but it ranges from understandable oversight or an inadvertent mistake up to serious negligence. A proportion of the cover amount is usually still paid as long as cover would still have been offered at outset.

Finally, ‘there is deliberate or reckless’, where on a balance of probabilities, the client knew the information was incorrect and relevant, or acted without any care as to whether it was correct or relevant to the provider. This very likely leads to the policy being cancelled from inception.

Before making any call over what category misrepresentation falls into, we’ll always endeavour to speak to a customer to get their side of the story, in line with the code.

The adviser’s role

For some of the most wilful cases, there are no easy answers. But there are a few ways in which advisers working with customers can help narrow the chances of misrepresentation.

We need customers to inform us of any pre-existing conditions, any undiagnosed developing symptoms, and any investigations they’ve had or are awaiting to have in answer to the questions we ask. In the latter case, often good news following an investigation should mean we can still offer cover.

We urge customers to check their alcohol consumption and disclose it accurately, including if they have ever been told by a medical professional to cut back. We ask that they measure their height and weight, not guesstimate it! We also want customers to admit if they occasionally smoke or vape or have tried it, and to answer all of our tobacco related questions as accurately as possible.

We ask that advisers remind their clients to read their statement of facts within 30 days of the policy starting to check that the answers given on the application are correct. It would also be wise for advisers to request their clients send them email confirmation that they’ve done this.

There are no winners when we can’t pay a claim. But minimising the chances of that happening – whether your client has simply got something wrong or made the wrong assumption, or perhaps underestimated the importance of disclosing their situation accurately – should benefit everyone, both you as advisers and your clients.

A better place but more to do

In the midst of this debate, it needs to be said that sector wide, a great deal of progress has already been made in terms of claims paid and transparency. We’re in a much better place than a couple of decades ago and the public can have much more confidence in claims being paid.

At the same time, working together, advisers and providers can still drive improvements. We’d love to see these few declined cases diminish in number or, as the business grows, as a proportion of our cover. We’re trying to do our bit by being transparent. We’d also like to hear your views of how we can work together to address misrepresentation and turn the dial down even further on claims not paid.

Phil’s article was published in COVER on 5 August 2024