Context
The FCA has published the results of a review it has conducted into insurance companies’ approaches to terminal illness benefits, and has made recommendations for improvement. Life insurance protection products, such as term assurance and whole of life assurance, often contain, as standard, a terminal illness (TI) benefit. This allows for an early payout of a life protection policy where the insured person is diagnosed with a terminal illness and expected to die within 12 months, allowing people time to set their financial affairs in order. This review focused on the practices of life insurers. However, the findings may also be relevant to any brokers or advisors who sell life insurance protection products.
Key points to note
Customers seeking to make a terminal illness claim on their life insurance policies are likely to be extremely vulnerable; engaging with an insurance company during this time will be an additional and unwelcome stress. There is also risk of significant consumer harm if insurers do not get their handling of claims right or offer the right customer support. The FCA has been made aware of individual cases where terminally ill individuals experienced outcomes they considered unfair. The potential issues raised included:
- the requirement for a terminally ill patient to have a 12-month prognosis of death from a medical practitionert
- The quality of the claims process from the customer’s first contact, including whether firms reasonably support such vulnerable customers, the challenges of providing medical evidence and the speed of claim decisions; and
- the removal of the terminal illness benefits towards the end of a term assurance policy term (most commonly in the final 12-24 months of the policy).
The FCA sets out examples of good practice, or sets out what it expects, under six main headings:
- Requirement for a 12-month prognosis of death given by a medical practitioner.
- The quality of the claims process and management information.
- Claims handling timelines.
- Firms’ use of internal medical experts.
- Potential conflict between the actual claims process compared with that set out in the policy wording.
- Removal of the terminal illness benefit towards the end of the policy term.
The FCA also sets out some next steps and alternative approaches.
Next actions
None – for information and awareness.