Non-disclosure is like global warming

In the wake of the recent damning Watchdog report on non-disclosure I wonder if the industry is going to react. It knows the majority of disputed claims is due to non-disclosure and that this is too high.

When we undertake studies into non-disclosure, we find when we tele-interview existing applicants (who have already completed a paper application form or electronic submission) there is 70% non-disclosure, meaning in 70% of tele-interviews we gather information which should have been disclosed on the paper application/on-line form.

Much of this is innocent non disclosure, but 30% of the tele-interviews do reveal material non-disclosure – where it changes the final underwriting decision. Another way of looking at this is that 70% of cases have incomplete information on paper application/on-line forms, so this could cause an issue at claims stage, and may result in the claim not being paid.

This is a particular concern with the 30% where there was material non disclosure, and with the number of contended claims often reported at 20% it is hence not surprising the Financial Ombudsman states that 20% of all CI policies are worthless.

There are initiatives to reduce non-disclosure at an industry level, noticeably the Treating Customers Fairly (TCF) initiative by the FSA and the Law Commission report, both of which recognise the issue of non-disclosure and both recommending changes to reduce it.

One of the issues with non-disclosure is that it includes a wide range of issues, including outright fraud by the applicant. However, the majority of non-disclosure is purely down to the poor information collected at application stage, and poor collection processes.

But it is impossible to measure the absolute amount of non-disclosure, as it is to a certain extent immeasurable. Also we know we will never eliminate it completely. What we do know is that it needs to reduce, massively. In several respects, it is a little like global warming.

We know it is there, we have difficulty measuring it, we agree it is detrimental, we want to reduce it. The comparison with global warming continues in that many small actions have to be taken to reduce non-disclosure, by many people.

Each participant does not want to reduce their commercial position by taking actions without everyone else undertaking the same. Should we then have an industry Kyoto type agreement? That all companies sign up to reduce non-disclosure by say 50% by 2009 and 80% by 20012. And that standard ways of measuring non-disclosure be introduced?

This would show the industry voluntarily leading the way, and just as importantly being able to report to consumer groups like Watchdog that it is putting its house in order.

The Kyoto agreement of course was not agreed by all, and individual countries are deciding on their own approaches. It may be this will be the same outcome with non-disclosure, and we will be showing that as an industry we can not manage ourselves.

If this is the case then we are asking to be managed by the FSA and - I fear to say it - the lawyers. So I call on the ABI and the industry to adopt a Kyoto style approach with realistic targets to reduce non-disclosure.

Obviously, we could not refer to them as the “Kyoto” targets, so I volunteer the “Daresbury” targets” after our office location (well sounds a little better than “Runcorn targets”).

The long term benefits are to reduce non-disclosure; to reduce the amount of contended claims; and hence improve the public perception to allow revenue growth. The short term benefits being the ability to manage the press, and (in good Blair like fashion) announce targets for the future to deflect the faults of today.

Andrew Gething is managing director of MorganAsh.

The views expressed are those of the author and not those of the company he represents.

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