Life insurance claims – meeting clients’ needs while managing risk

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 that 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 that occurred in relation to the information that the insurer had available to it when it first granted the cover.

With this in mind, insurers may pick up on certain ‘red flags’ when assessing a claim that may require further investigation. These red flags don’t necessarily mean that a claim won’t be paid or that the insurer suspects any kind of 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, most importantly, the fairest possible outcomes.

1. If a claim arises very soon after the policy was issued, the insurer may require further information: For fully-underwritten life insurance policies, an early claim may raise the red flag, especially if they had no serious health concerns at the time when they 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 their treating doctors and medical aid record – to rule out any concerns in this regard.

2. If a claim occurs soon after the client has made major changes to their life insurance 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 claims requirements – before paying the claim.

3. If a claimant or financial adviser places undue pressure 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 official documents submitted in support of a claim

Unfortunately, it does happen – albeit very 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 these official documentation, such as ID documents or death certificates, they will take extra care to verify the authenticity of the documentation. For example, if a client has died in a high-risk foreign territory, they may contact consulates or embassies to verify the authenticity of the documents submitted. Discrepancies that may raise the 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 all lead an assessor to double-check the veracity of the information received.

5. Death claims in strange or suspicious circumstances, especially in the case where the claimed amount is very high

Insurers may raise a flag if the circumstances surrounding a death claim are unusual or unclear, in particular 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. While it is very 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 would be a definite indicator that great care needs to be taken to investigate the claim before it is paid.

As an industry, life insurers are committed to paying valid claims to protect clients against the financial impact of life-changing events. However, the sustainability of the 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 like 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.