Life insurance is about balancing and managing risks. For insurers to offer clients sustainable and affordable cover, they need to price risk accurately.
Through the underwriting process, clients disclose information that enables the insurer to understand a client’s health status, along with their occupational, lifestyle and financial risks. This allows the insurer to make an informed decision about whether it can afford to take on the client’s risk.
Insurers also need to manage and assess risk at claim stage. This doesn’t mean insurers are doing underwriting at claim stage or looking for reasons not to pay a claim. Insurers are in the business of paying valid claims and are obliged to honour the terms of the insurance contract.
However, it is essential to understand why a claim event occurred, to verify that it did occur and, sometimes, to understand the claim event in relation to the information that the insurer had available to it when it first granted the cover.
Insurers may pick up on certain “red flags” when assessing a claim that may require further investigation. These red flags don’t necessarily mean a claim won’t be paid or that the insurer suspects foul play, but the insurer may ask for more information or for further supporting evidence. And, in a small number of instances, this investigation may highlight an issue that requires the insurer to implement some measure of risk mitigation.
As a financial adviser, understanding these potential red flags can support a smoother claims process for you and your client, ensuring sound risk management and the fairest possible outcome.
1. If a claim arises soon after the policy was issued
For fully underwritten life insurance policies, an early claim may raise a red flag, particularly if the policyholder had no serious health concerns when he or she signed up. Of course, this depends on the type and size of the claim.
As non-disclosure and anti-selective behaviour are major risks faced by insurers, it’s likely that insurers will request additional information, such as reports from the treating doctors and a medical scheme record, to rule out any concerns in this regard.
2. If a claim occurs soon after the client has made major changes to their policy
As with early claims, insurers may be concerned that a claimant who has recently made major changes to their life insurance policy may have been aware of a change in their health. The insurer may request additional information, over and above the standard claim requirements, before paying the claim.
3. If undue pressure is placed on an insurer to pay out a claim quickly without following process
It’s vital that insurers approach claims with urgency, doing their best to pay out the claim as quickly possible. Assessors are aware that families may be in urgent need of funds for a funeral, or that claimants may be in desperate need of a disability payment when they aren’t earning an income. So, it’s understandable that advisers or claimants may place pressure on the insurer to pay as soon as possible.
However, in some instances, insurers may experience undue pressure – sometimes to the point of harassment – to expedite the claim or cut corners in the process. When that’s the case, assessors may need to take particular care that the correct process is followed to ensure they don’t miss critical information because they’re rushing through the assessment of the claim.
4. If there are strange discrepancies or inconsistencies in supporting documents
It does happen, albeit rarely, that invalid or fraudulent documentation may be submitted to an insurer in support of a claim. If assessors pick up any errors or inconsistencies in the official documents, such as identity documents or death certificates, they will take extra care to verify the authenticity of the documentation. For example, if a client died in a high-risk foreign territory, the assessors may contact consulates or embassies to verify the authenticity of the documents submitted.
Discrepancies that may raise a red flag for an assessor could include inconsistencies in the handwriting, font, or ink across the pages of the same document and between documentation from the same source. Spelling and grammatical errors, distorted logos, or inappropriate language, such as the incorrect use of medical terminology, may lead an assessor to double-check the veracity of the information received.
5. Death claims in strange or suspicious circumstances, particularly where the claimed amount is high
Insurers may raise a red flag if the circumstances surrounding a death claim are unusual or unclear, particularly where the death is as a result of unnatural causes and where the insured amount is especially large.
Assessors may request further information, such as a police report from the investigating officer, to rule out foul play.
Although it is rare for a beneficiary to be involved in the death of an insured person, it is not unheard of. In the first two years of a policy when suicide claims are excluded, insurers will also take a deeper look to rule out suicide as the cause of death.
If more than one of the red flags highlighted above are present, this is a definite indicator that great care needs to be taken to investigate the claim before it is paid.
Impact on honest clients
Life insurers are committed to paying valid claims to protect clients against the financial impact of life-changing events. However, the sustainability of the life industry would be at risk if insurers paid out potentially false or fraudulent claims without performing due diligence checks.
False and fraudulent claims, and issues such as non-disclosure and anti-selection, can lead insurers to pay out far more claims than they had priced for, which may lead to premium increases for all clients, with honest clients subsidising claims pay-outs for clients who should not have been paid out, or shouldn’t have been granted cover in the first place.
Clyde Parsons is the chief innovation officer at BrightRock.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies.
A very insightful article, Clyde. The five red flags you’ve highlighted are indeed crucial for advisers to be aware of when dealing with life insurance claims.
The early claim, especially in the context of a fully underwritten life insurance policy, is a classic red flag. It’s essential for insurers to verify the circumstances surrounding such claims to ensure they are legitimate and not a result of non-disclosure or anti-selective behavior.
Similarly, major changes to a policy shortly before a claim or undue pressure to expedite a claim can be indicative of potential issues. It’s crucial for insurers to maintain their due diligence processes in these situations to protect against potential fraud.
The point about discrepancies or inconsistencies in supporting documents is particularly important. In the digital age, the risk of fraudulent documentation is ever-present, and insurers must be vigilant in verifying the authenticity of the documents they receive.
Lastly, death claims under strange or suspicious circumstances, particularly for large insured amounts, definitely warrant further investigation. While it’s rare for beneficiaries to be involved in the insured person’s death, it’s a possibility that insurers must consider.
Your emphasis on the impact of false and fraudulent claims on honest clients is well taken. It’s a reminder of why insurers must maintain robust risk management processes, not just to protect themselves, but also to ensure the fairness and sustainability of the insurance system for all clients.
Thank you for sharing these valuable insights. They provide a useful guide for advisers in understanding the claims process and the potential red flags to watch out for.