22 Comment


WHOSE POLICY IS IT ANYWAY? Protection products and the passing of time


TONY LEVENE freelance personal finance journalist


WINNER of the Association of British Insurers Lifetime Achievement in Financial Journalism Award 2009


I wonder how many Health Insurance subscribers have ever read “Dead Souls”? It’s a Russian novel by Nikolai Gogol, written in 1842. The plot centres on the sale of serfs – Russia would still be feudal until 1868 – who, although dead, still existed in property registers and were therefore owned by their lords and masters. As such, they could be sold on to others even though they ostensibly had no productive value. After all, could you make a dead serf work on your land? In the novel, that makes no difference –


especially when the souls are sold by a hard-up would-be aristocrat. There’s a lot more to Dead Souls than that but I was reminded of the novel (I can recommend the Penguin translation by Robert Maguire ) while probing a recent critical illness (CI) claim which was rejected for being what can only be described as the “wrong sort of ovarian cancer”. I’ll spare the medical details and the highly invasive treatment the policyholder received. First look at the effect this refusal to


pay £75,000 had on the insured woman. She tells me she had initially forgotten about the policy – she is now in her early forties and took out the plan in her mid twenties as protection to back a mortgage. She now wishes she had never bothered claiming – I wonder how many others don’t claim for fear of rejection. But the reason for turning down the


claim was in line with a strict reading of the policy conditions. There are cancers and cancers. But what I found fascinating was the way this policy had been sold on – just like a Dead Soul. Her IFA had sold her a plan with


Scottish Provident. Why Scottish Provident? There could be many – now probably unknowable – reasons but the insurer had, and still has, a very strong reputation or “brand value” in the protection market. Neither IFA nor policyholder knew


that Scottish Provident would be sold – and sold again with various parts of the business going in different directions.


HealthInsurance


The policyholder, like one of Gogol’s Dead Souls, had no choice in the matter. Lapsing and perhaps rebroking would be, potentially, a costly business. Her policy ended up with Phoenix. Phoenix buys books of business which are closed for one reason or another. Most are with-profits endowments. Leaving aside the effect this decline had on the insured woman – she is now in her early forties and took out the policy in her mid twenties as protection to back a mortgage plan. Phoenix, which has made scores of similar acquisitions of old policies, is variously described as a “vulture fund” or a “zombie fund”. It might prefer the first – vultures clean up carrion while the only discernible role of a zombie is to scare you at the cinema. Phoenix says that everything is


does is approved by the Financial Services Authority (FSA). While this is


“The reason for turning down the claim was in line with a strict reading of the policy conditions. There are cancers and cancers. But what is fascinating is the way the policy had been sold on”


factually accurate, this is not too great a recommendation. If there was an Office for the Regulation of Regulators the FSA would be at least in special measures. Phoenix says “the companies we buy


are failing. Insurers don’t close because they are successful. The previous owners destroyed brand values. We are obviously not starting in the greatest place. But we have 6.5 million customers now and we want their experience to be good.” It may be better or worse than


Scottish Provident when dealing with consumers. There is no way of knowing. But it is not the firm the policyholder took the contract with. It is clear that most of Phoenix’s


business consists of failed with-profits firms. The long list is a life assurance memory lane. But this policy was a £30 a month pure protection plan. The problem from


the Scottish Provident side is that it is still very much in business, promoting protection, and boasting of its brand values. So the IFA recommends Scottish


Provident but cannot be sure that the plan will stay with that company. It could sell a further book to Phoenix or another similar organisation. Selling a book to a vulture fund is


probably making the best of a bad job for policies which are deeply in trouble. But what does it do for brand values? When a successful brand like Scottish Provident does this while continuing to sell newer CI policies, can anyone blame customers ignoring brands? For they have no way of knowing which will be around in five, let alone 25, years. It might be easier if everything came in plain wrappers – at least that way advisers could concentrate more on the conditions covered. The woman with ovarian cancer has


been treated in line with the rules. But there are always grey areas. It is always easier for anyone in the media to deal with a firm with a future, one that wants to attract new business, than one that is closed or in a vulture fund. And what about the original selling


of the policy? The best part of 15 years onwards, it is hoped that much has changed and that IFAs no longer give such a uncritical view of CI cover. But when this policy was sold it was commonplace then to give potential policyholders that broad brush approach that said one in three will get cancer and that one in four will die from it. There were similarly styled scare statistics for heart disease and strokes. These numbers sidestepped the


uncomfortable fact that most of these conditions would develop long after the policy had expired. But leaving that aside, they left the impression that cancer – and not just some versions – would be covered. Insurers now blame IFAs for creating


this false sense of cover. But who came up with the figures? Who supplied the printed material with these numbers? Readers can hazard a guess but it was certainly not the IFA community.


HI www.hi-mag.com April 2011


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