This situation is causing frustration for advisers. Lindsey Joseph, divisional director, group risk at LEBC Corporate Healthcare Solutions, says: “When SME schemes were purely community rated, we could accept this rationale. But now, the amount an SME claims will affect their premium so you need to know the claims experience to be able to rebroke the business properly.”
Without this information, decisions have to be made on price alone. Natasha Peacock, director of Regulatory Legal Solicitors, says this puts brokers in a difficult position. “Brokers are on a knife edge as they can’t do the best thing for their client without information about the claims history. The FSA would come down like a tonne of bricks if it found someone was broking on price alone. The broker is having to take on all the regulatory risk.”
Her view is echoed by Richard Hobbs, board director at Lansons Communications. He has worked in the insurance directorate of the Department of Trade and Industry and was previously head of life and pensions at the Association of British Insurers. “This practice could be a breach of Treating Customers Fairly,” he says. “European directive law requires an insurance intermediary to effectively scour the market for the best deal for their client. A broker cannot do this because he is being frustrated by the behaviour of the underwriters.”
As well as potentially breaching the TCF requirements, those in favour of claims history disclosure also say that by retaining this information, insurers are behaving anti-competitively.
“It’s a competition issue,” says Alistair Sclare, director of healthcare at Groupama. “By not releasing claims history information, insurers are blocking the market. A competing insurer can’t price a risk accurately without claims history information and this means the holding insurer can protect all the good risk they have on their books. It’s a shame the Office of Fair Trading didn’t include this area in their review of the market. They said they didn’t have the time or resource to include it but they may revisit the issue later in the year.”
But while there is no firm requirement to disclose claims history, resistance remains. Axa PPP healthcare is among those that stick firmly to the position of not disclosing the information. “Our stance is very straightforward and is supported by our compliance and legal teams,”
xplains Fergus Craig, commercial director at Axa PPP healthcare. “If an employee makes a claim, it’s personal information about them and, under the DPA, we would need their consent to release this. It’s unlikely that they would give this freely so we could find ourselves in the dock for releasing the information.”
To illustrate his point, he says that if data is released for a small group where one person has made a large claim, it won’t take long before the employer realises who made the claim. This could lead the employer to take the claiming employee off the medical insurance to reduce the premium increase. Unhappy with this, the employee could then sue the insurer for releasing the data.
But Peacock doesn’t have much time for this argument. She describes it as taking a point and stretching it to the extreme. “I can see there is a worry about being sued by the employee but practically speaking this isn’t going to happen. If an employee was removed from a medical insurance scheme for claiming, they would have grounds under the Disability Discrimination Act to sue their employer. Suing the insurer wouldn’t even come into it,” she says.
Further, while some argue that releasing claims history is a potential breach of the DPA, others believe that the nature of the data required means this isn’t the case. “We’d only need a claims ratio to give us the information to broke the business more effectively,” says Mike Blake, compliance director at PMI Health Group. “Insurers that argue this is in breach of the DPA are taking it too far. Someone has to make their own deductions to reach conclusions about who’s been claiming. The claims ratio doesn’t tell them that.”
Indeed, for employers predisposed to a spot of detective work around their medical insurance schemes, insurers are already giving out sufficient information to enable them to work out whether someone has claimed. With claims history influencing price, a sharp rise in premium will tell them someone has made a significant claim.
But, while arguments over the application of the DPA rumble on, there are signs that some insurers are relaxing their rules on the data they do share with advisers. Bupa provides a three year rolling claims loss ratio and Aviva is starting to disclose more information on its SME business. “It’s a tough market for SMEs and we believe that by sharing some information they get the best possible service,” says Kevin Murdoch, senior proposition development manager at Aviva UK Health.
I can see there is a worry about being sued by the employee but practically speaking this isn’t going to happen
To do this, when an SME scheme is up for renewal, Aviva provides information on how the scheme is performing compared to other similar schemes. It also benchmarks the current year’s banding of the scheme against the renewal banding to give an indication of how it has performed over the year. It will also provide details on large claims if requested, although it limits the information it shares to whether a premium increase is down to one large claim or overall high claims volume. Additionally, to prevent former employees distorting the claims history, it disregards any claims made by members who have left the scheme prior to the end of month nine. “We try to take into account the personal nature of the group when pricing at renewal and will water-down the influence of claims history if we don’t believe it’s indicative,” says Murdoch. “I do think full disclosure opens you up to issues with the DPA but it is useful to provide some information.”
While the fact that some insurers are releasing more information is welcomed, full cooperation and a standard approach is necessary to enable advisers to broke business effectively. Matthew Judge, technical director at Jelf Employee Benefits, would like to see all insurers agree on a basic level of claims information that could easily be disclosed.
As an example he says that if all insurers confirmed the loss ratio over the current year and two previous years, or a combined figure over the last three years, and outlined any major claims for areas such as heart, cancer and psychiatric treatment it would enable them to draw fairer comparisons. “This would encourage more informed renewal decisions to be made,” he says. “It would also be fairer to clients and insurers.
Many insurers have declarations that have to be signed by the employer in good faith, stating that, at the point of transfer, they are unaware of any claims in the key areas such as cancer and psychiatric. If this data was freely disclosed about these risk areas then these declarations could be tighter and less likely to be challenged post transfer.”
But, with some insurers still unhappy about the prospect of voluntarily disclosing this information, some feel it may take action from the regulator to move to this position. Peacock points to the FSA’s discussion paper on product intervention to support this view. “In the financial services sector there’s been a lot of action around misselling and this paper questions whether it’s the way the product providers are behaving that is causing the problem. I’m not sure whether this will extend to the insurance sector as this is subject to EU-led law but it could be the trigger for setting requirements on claims history disclosure on SME medical insurance schemes,” she says.
If the regulator does step in, the outcome might not be to everyone’s liking. Sclare adds: “I would prefer the industry to move on this itself but this is unlikely. Advisers could club together to put pressure on the insurers but the climate isn’t ideal for this. Unfortunately if the regulator does intervene, rulings are likely to be more stringent. It will reflect badly on the industry.”
