Current flaws in life insurance policy setup practices are leaving a high number of claimants at risk of delays and without guaranteed access to death benefits, new analysis reveals.
Life claims: a beneficial direction, published today by Swiss Re in conjunction with Insuring Change, examines the risk of term life insurance policies resulting in delayed claims or, worse still, payment to someone other than the policyholder intended.
Key findings from the research include:
- In 2022, the beneficiary gap* for new single life term policies (with or without critical illness) was 79%, down from 84% in 2021.
- The estimated number of possible new single life policies not in trust fell to approximately 962,000, largely due to a drop of 96,287 in total term sales which included life cover.
- The overall proportion of single life policies increased to 78.8% (up from 78.6% in 2021), and reached 91.2% of all level term life cover, including with critical illness.
- Non-advised level term life-only (LTA) sales fell by 98,761 policies (or nearly a quarter) year-on-year in 2022. These now represent 42.2% of all LTA sales, down from 50.3% in 2021.
- The average time from application to grant of probate or administration in England and Wales has increased markedly over recent years.
The report comes at a time when Consumer Duty now applies to new and existing products that are open to business. The Duty will apply to closed book policies from the end of July 2024.
Jo Scott, Industry Affairs Manager at Swiss Re and joint author of the report, said: “While it’s great to see a growing number of advised policy sales, we absolutely must improve the policy ownership experience where customers buy without a discussion with an adviser. Equally, there is no room for complacency in the advised sector if we are to build on this progress.
“Consumer Duty brings the need for policy ownership to be brought to the forefront of the new business process, irrespective of whether the customer buys through an adviser or without advice. Having widespread availability of simple solutions to ensure that policies can pay out quickly to the intended person is more pressing than ever.”
For the first time, this year’s report includes data showing the take up of beneficiary nomination from three insurers. These are showing take up rates of more than double the figures for trusts.
Joint report author and inventor of the UK’s beneficiary nomination solution, Ruth Gilbert, said: “It’s reassuring to see that these adoption rates show intermediaries and customers responding to the simplicity of the solution with the enthusiasm hoped for.”
The report also estimates that there are about eight million in-force policies not in trust – and that up to two million of these could be held by a cohabitee whose partner would not automatically receive the payout if intestacy rules were applied.
Joint author Ron Wheatcroft, Technical Manager at Swiss Re, said: “Although insurers have financial limits up to which they will pay without waiting for probate, this doesn’t help if the intended beneficiary has no right to claim. Also, limits and criteria for qualifying up to these limits, such as existence of a will, vary and may not be transparent to advisers or consumers.
“Uncertainty caused by probate delays and intestacy rules risk poor claim outcomes for the intended beneficiary, so there are very good reasons to include an assessment of policy ownership and a resulting action plan in existing business reviews.”
