Deciphering trends in life complaints

With the recent release of the Ombudsman for Long-term Insurance’s (OLTI) annual report for 2015, it was encouraging to see that the number of complaints for credit life and disability remained stable at 10% since 2014.

While the number of complaints for funeral and life cover also remained stable (respectively at 35% and 31%), the predominance of these complaints remains a concern.

Driver of complaints

There are two possible factors that could be driving the complaints. Firstly, it seems indicative of the fact that there is a gap between clients’ expectations and product performance.

Secondly, it could be as a result of clients’ and beneficiaries’ increasing awareness of the avenues they can follow in the event that they are not happy with how their claims have been handled – something which could be viewed as a positive trend in the Treating Customers Fairly (TCF) environment.

The way the insurance market is servicing its clients plays a big role in the discrepancy between the types of complaints.

A determining factor

Consumers tend to take out life cover looking at it as a lump-sum amount that pays out in the event of death, without understanding that their policies might include cover for dread disease and disability. They also do not necessarily understand how that figure will translate into a monthly income for their dependants and how long, taking inflation into account, it will last ¬– which might contribute to families’ disappointment at claim stage.

Many industry role-players seem to lose sight of the fact that the distribution of long-term cover boils down to a fairly clear principle: the more sophisticated the product; the stronger the likelihood that the product will be sold on a face-to-face basis.

It is more likely that people are buying life cover without receiving advice, because the level of complexity and uncertainty tends to be at its highest with cover for critical illness and disability and income protection, where premium patterns and underwriting requirements do not necessarily provide instant solutions to consumers’ life cover needs. As a result, it would make sense that the number of complaints about life cover is substantially higher than the complaints about disability.

With this, there is also another factor to consider. There are numerous life cover products in the market that rely on underwriting at claim stage – a process that is not always adequately explained to clients when they take out the cover, which is possibly another reason why life cover complaints are so high.

Aligning product structures

While focusing on service delivery is important, the most significant way for our industry to reduce the number of complaints is for providers to align product structures more explicitly to clients’ financial needs. In this way, clients can link their premium and pay-out clearly to the items that make up their household budget.

It is not just in terms of product design that we can strive to reduce the number of ombudsman complaints. If you are wondering what you, as a financial adviser, can do to protect your clients from any form of disappointment at claim stage, you could consider the following points:

• Compare the lists of clinical conditions different product providers provide cover for because some cover a limited amount of conditions, and others are more comprehensive;
• Select products that minimise onerous survival periods and offer claims certainty;
• Support products that provide clients with more risk cover when they need it without tedious underwriting processes;
• And last, but definitely not least: encourage clients to be clear and honest when they undergo underwriting.

In conclusion – while there has been noteworthy progress in the industry to be more transparent through following the TCF principles and plain language practices, the industry has a lot more work to do. The role of the ombudsman is of crucial importance to the industry, but insurance providers and financial advisers alike can do more to help clients understand exactly what they are signing up for.