Insurers fail the compassion test over terminal illnesses

A couple of weeks ago, the BBC One Show Watchdog led with a story about how life insurers treat people who are diagnosed with terminal illnesses. While most policies will pay out when your doctor gives you a death sentence, they will only do so if you're given less than a year to live.

From a cold profit and loss perspective, it's not hard to see why insurers draw this arbitrary line in the sand. The longer your doctor gives you to live, the greater chances you have of surviving longer still. And of course, a minority of people have managed to cheat their death sentence altogether - outliving doctors' expectations by many years.

But from the customer's perspective, an insurer refusing to pay out because their doctor has given them 18 months to live rather than 12 rightly feels callous. Just as there are those who have cheated their odds by living longer, there are those who are given 18 months to live and who are dead in nine. I'd bet that having to spend the last months of your life worrying about money increases the chances of you dying sooner - and makes it much more difficult to enjoy your last days as you'd hoped.

False economies

Malcolm Tarling from the Association of British Insurers bravely took the seat across from Anne Robinson in the studio - to defend the industry's practice. The 12 month cut off is ABI policy, so it's right that they had a representative to defend the line. In spite of all his noble protestations that the industry pays out over 90% of claims, to a total of several million every week, it was impossible for him to defend the position from a moral perspective.

I'm not sure it stacks up financially either. Presumably, the vast majority of people who are given a terminal prognosis die within two or three years. So the cost of with-holding a payout is really only the cost of lost interest or investment returns for those three years. There is also the possibility that by the time the policyholder dies their policy will have lapsed - but surely the cost to the industry of doing the right thing on these kind of claims would still be minimal.

The reputational cost to them of standing firm on their 12 month rule, however, is a less tangible but arguably much greater cost. Insurers will never be able to make the case that they care and can be trusted if they turn down claims in cases where nine out of 10 people believe they shouldn't.

In one of the two cases featured on Watchdog, the Ombudsman ruled that the complainant should be paid - so the claim rejection by Aviva was just poor customer handling.

Until the industry stops making its claim decisions based purely on the bottom line, it stands no chance of rebuilding trust with the public. Life insurance very rarely hits the headlines, and when people see stories such as this one, it makes them think that buying insurance at all is a waste of money. In fact, the opposite is usually true - and we need to find ways of getting more people insured, not less.