Standardised definitions for dread disease policies

Standardised definitions could help to remove controversy from one of the most contentious issues facing the insurance industry – disputes arising from claims against dread disease policies when an insurer insists that a key criterion was not met.

Group Advisory Services at leading life assurer Liberty Life believes standardisation will alleviate this recurring problem.

In the past, some consumers have felt frustrated – even cheated – after receiving a diagnosis that the insurer felt did not meet the definition of illness stipulated in the contract.

In one recent example, an insured person was diagnosed by his doctor as having had a heart attack only to have his claim denied because his cardiac enzymes had not risen to the level stipulated in the contract.

While the Financial Advisory and Intermediary Services Ombudsman upheld the denial of the claim, cases like this continue to damage the image of the insurance industry in the eyes of the public.

Farai Muronda, Actuary at Group Advisory Services, notes: “Critical illnesses such as a heart attack or cancer require complex medical diagnoses. Doctors may not always look at the same criteria when giving a diagnosis.

“However, it is precisely at this time that the customer’s need for cover is greatest. Standardised definitions will protect the customer’s interests while assuring the insurer of the validity of the claim.”

Insurance is based on trust and the consumer purchases cover in the belief that the insurer will be there to help when catastrophic life events occur.

Muronda adds: “It is important that consumers do not feel misled when claims are denied because of hard-to-understand technicalities that vary from contract to contract.”

To this end, the Life Offices Association (LOA) has published a “Jargon Buster” – a set of standardised definitions and product comparisons that serve as an optional guide to companies as they design dread disease products and marketing materials.

The Jargon Buster will indicate to policyholders what percentage of the insurance cover will be paid out for four different severity levels applied to the four major medical conditions that make up between 70% and 90% of all critical illness claims – heart attack, cancer, stroke and coronary artery disease.

There are four “tiers of severities” for each of the four core diseases for a total of 16 standard definitions.

Muronda believes the Jargon Buster will be welcomed in the marketplace. “This development will greatly increase the confidence consumers have in their dread disease cover,” he says.