It’s time for a holistic approach to risk insurance

With professional standards becoming more demanding and clients’ risk insurance expectations rising, it’s time for advisers to adopt a genuinely holistic approach that encompasses offering advice at time of claim, writes Col Fullagar.

The responsibilities falling to those who provide risk insurance advice are considerable, for they are charged with protecting the financial security and independence of clients, now and into the future. 

To take up and meet these responsibilities can, and should, result in considerable monetary and non-monetary reward. 

To take up and fail to meet these responsibilities can lead to widespread and devastating consequences: 

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First and foremost, there is the endangerment of the financial well-being of the client and those who are dependent on the client; 

There may be a flow-on effect impacting the adviser’s reputation and business which underpins the financial well-being of those who are dependent on the adviser; and 

There can also be an indirect impact in areas such as industry reputation, regulatory changes, insurer profitability and insurance costs. 

The list is long. 

It is therefore essential to have regulated safeguards in place enabling all parties to not only have an element of protection but to have confidence in the process, knowing protection exists. 

For the adviser, however, regulation might be viewed as little more than the price of entry as it would be a folly to assume that because qualifications, processes and compliance exist, safety from adverse experiences will co-exist.  

Prudent concern demands the adviser engage in constant vigilance, working from the assumption there is no justice so that areas of exposure can be identified and corrected; with ongoing process improvement being necessary to ensure there is no opportunity for risk exposure.  

Is it fair to say then that when regulated requirements are met and constant vigilance is practiced, an adviser can be allowed the luxury of the same peace of mind promised to clients? 

Sounds fair – but as Ira Gershwin wrote in 1935, “It ain’t necessarily so”. 

Tim’s story 

Consider Tim the adviser: 

• He is brilliantly qualified and has maintained a consistently high standard for many years; 
• He undertakes the advice process to compliant perfection; 
• His procedures are robust, rigorous, continually under review and subjected to improvement; and 
• His recommendations – well they simply cannot be faulted. 

Many might view Tim’s position with envy, thinking he has little to worry about – particularly bearing in mind that, for his top clients, he goes the extra mile by assisting them if they ever need to make a risk insurance claim.  

Tim sees that the insurer is notified, the claim forms are diligently completed and lodged, and any necessary requirements are obtained in a timely manner. 

Tim, however, may be sitting on a time-bomb with a fast-running timer due to a gap in his qualifications and processes, with even his extra-mile actions increasingly exposing him to financially fatal risks. 

The problem is that, whilst Tim’s clients might forgive him for any perceived shortcomings in his advice if a claim is made and the benefit subsequently paid, they are unlikely to forgive him for shortcomings at the time of a claim if these result in the benefit not being paid.  

Unfortunately, for Tim: 

• He is not required to, nor does he possess any formal qualifications focused on how to provide appropriate assistance and advice at the time of a claim; 
• He does not have a documented, consistent or compliant process to follow in respect of the management of his client’s claims; and 
• No checks are undertaken to ensure quality processes are consistently implemented and regularly update and improved. 

Realising his exposure, Tim might consider a strategic withdrawal from the claim process altogether, but even this might be a flawed strategy as the risks can arise from both action and inaction. 

Tim might brush the issue aside, pleading: “Surely, a claim is either valid or not. I leave it to the experts within the insurance company to manage and assess the claim”. But is the insurer always “expert” and is it reasonable to leave the client wholly in the hands of the insurer? 

Finally, Tim may cite business priorities, financial imperatives or personal shortcomings as precluding involvement other than at a cursory level, but will the client agree with Tim’s priorities when a claim runs into problems leading to the incurring of a financial loss? 

The sobering truth is that whilst sound financial advice is critically important and acknowledged as such, sound advice at the time of a claim is arguably more important and yet, in relative terms, it has been largely ignored. 

In an environment of ever higher professional standards governing the provision of financial advice and ever-increasing consumer expectations and knowledge of alternatives if expectations are not met, the time might be right to formally acknowledge that holistic advice actually does encompass the whole process of: 

• Initial advice; 
• The regular review of previous advice; and 
• Advice at the time of a claim. 

Once claims management is recognised and acknowledged as being an integral part of the advice process, it follows, as broken promises follow elections, that adviser involvement must receive serious attention in a way equivalent to other aspects of the advice process. 

Thus the focus of this three-part article which will look at what is being termed Claims Management Best Practice. 

Claims Management Best Practice is the documenting, learning, practicing, auditing, reviewing and continually improving the process whereby a client is advised about, and assisted with, a risk insurance claim. 

Importantly, this is not about making an adviser’s life more difficult and more weighted down with processes; it is about making: 

• The adviser’s life safer: 
• The adviser’s business more valuable;  
• The adviser value-add clearer to the client; and, of course 
• The client’s claim outcome more assured and appropriate via a timely, predictable, understood and respectful claim process leading to either the receipt of a benefit payment or an appreciation of why payment cannot be made. 

Claims Management Best Practice is also about delivering a material process improvement and financial bonus to the insurer, at zero cost. 

Who knows, it may even have a positive impact on industry perception! 

Having said that, what follows is not represented as Best Practice – Best Practice, as such, will and should always remain a target aspired to rather than an outcome achieved. 

Hopefully, however, what follows will represent a framework for the development of a Better Practice.   

Best practice framework 

By recognising claim advice as simply an extension of the holistic advice process, it is logical to expect that the framework for claim advice will be similar to that for the other areas of advice.  

Thus the provision of advice at the time of a claim might entail: 

• A fact finding process during which material information is obtained; 
• Analysis during which information obtained is reviewed and assessed; 
• Research involving the obtaining of other relevant information; and finally 
• The provision of a recommendation which, if accepted, is implemented, monitored and reviewed. 

The use of the word “might” acknowledges that Best Practice embraces flexibility, enabling the tailoring of claim advice and assistance to unique client needs such that there is provision for limited advice and comprehensive advice, and everything in between. 

Insurer’s claim form 

A prerequisite to the development of Claims Management Best Practice is to look at and position what might be reasonably seen as a core component of the current claim process, ie, the insurer’s claim form. 

The completion and submission of the claim form should generally be considered compulsory, even if for no other reason than some insurers appear incapable of assessing a claim unless they have their form completed and submitted. 

It is contended though that the claim form’s importance within Best Practice is no greater than that of the application form within initial advice.  

Taking the analogy further, however, prior to completing the claim form there would appear to be considerable merit in informing the client of an amended ‘duty of disclosure’: ie, it should be made clear that the claim form must be completed honestly with no material information being withheld or “lilies being gilded”. 

Whilst non-disclosure within an application form can have serious consequences, making inaccurate statements at the time of a claim can have worse consequences as it can lead to the claim not only being denied but the insurance being cancelled if the inaccuracies are deemed to be fraudulent. 

Questions within the claim form should be answered where appropriate, and as much relevant information as possible should be provided. Where completion of a question is unnecessary or irrelevant, this should be noted and/or additional information should be referenced. 

Whilst completion of the claim form has merit, the potential weaknesses of these forms should be kept in mind.   

Generic questions 

By necessity, the questions within an insurer’s claim form will be somewhat generic. 

There is therefore a risk that the client’s answers will inadvertently become tailored to the questions rather than to the need to provide the insurer with relevant information.  

In an attempt to overcome the shortcomings of generic questions, insurers include an “Additional Information” section.

Unfortunately, the space provided can be token in comparison to what might be necessary, resulting in an impression that the maximum additional information required is that which fills the space provided. 

All this can result in deficient and unclear information being provided – which leads to misunderstandings, unnecessary questions and requirements subsequently being asked and requested, and ultimately delays in the claims management process. 

A better result might be achieved if the claim form was treated in the same way as an application form: ie, as a guide, albeit a good guide, to the type of information the insurer needs to identify requirements and assess the claim. 

Thus the skill of the adviser is to tailor the questions in the claim form to their client’s unique circumstances and the insurer’s needs. Also, as with the application form, if there is any doubt a quick call to a claim’s assessor may assist. 

Inconsistent questions 

Questions within claim forms are sometimes poorly worded and/or worded in a way inconsistent with the policy terms and conditions.

For example, an income protection definition of total disability may refer to “one important duty”, whereas the claim form questions the client about being “totally unable to work”. 

The position is made worse when the forms of more than one insurer are being completed, as consistency is nowhere to be found. 

Errors in kind and errors by omission are more likely to occur in this environment and thus again, the adviser value-add may be to complete the claim form whilst bearing in mind the actual contractual position.   

Generic products 

Claim forms tend to be designed around the benefit entitlements and definitions of the insurer’s current tranche of risk products. 

Indicatively, however, up to 50 per cent of policies in force and therefore claimed under are legacy contracts that often have different benefit entitlements and definitions. 

Problems can certainly beset the adviser who completes a claim form oblivious to legacy product nuances such as unequal income protection benefit periods for sickness and injury, or a policy that ends subsequent to set periods of absence from work. 

Insurer agenda 

Claim forms are designed by insurers with, in part, their particular agenda in mind. If this differs from the client’s reality, problems can again arise. 

If, for example, questions are focussed on a return to work but the insured’s circumstances are such that this is currently an inappropriate goal, care may be needed to ensure relevant background information is provided. 

Also, whilst an insurer needs to ask questions in an environment where not all claims are genuine, an overly-honest claimant can create problems by wanting to provide too much information without a disciplined overlay explanation. 

Unfortunately, there is a temptation to start and end adviser involvement in the claims process with the completion and submission of the claim form. 

This temptation can arise from the apparent preference of some insurers that post-submission of the claim form, they should be allowed to get on with what they do best without interruption or interference from the adviser and/or client. 

This temptation should be avoided and resisted. 

Notwithstanding its importance, particularly to the insurer, the claim form must take its appropriate place and Claims Management Best Practice must go further.  

Summary 

Part one of this article has looked at the reasons why claims management should be viewed as an integral part of the holistic advice process, arguably holding equal or even greater importance to that other parts of the process. 

It was noted that direct and indirect risks can arise if advisers are not prepared for and involved in advising and assisting clients when they claim – and these risks have been levered as a reason for developing a robust yet flexible process termed Claims Management Best Practice. 

And finally the importance – and weaknesses – of the insurer’s claim forms have been discussed. 

Part two of this article will look at fact finding within a claim environment and consider the case for and content of a claim fact find.

Col Fullagar is the principal of Integrity Solutions Pty Ltd.