How understanding vulnerability data could help resolve Life cover challenges

23 February 2023

A recent report by Swiss Re “Life Cover Payouts – under the microscope” revealed some challenges for new and existing life policies. An increased understanding of customers’ vulnerability required under Consumer Duty regulations could help to resolve these potential harms.

The report highlighted that couples cohabiting but not married with single life policies might think that their life cover claim will go to their ‘common law spouse’ in the event of their demise. In practice, any claimed funds are likely to be directed to next of kin. This could impact around 400,000 applicants a year.

The full report is available from swissre@mrm-london.com.

MorganAsh notes that another challenge is where consumers have changed employment or liability circumstances then cover may no longer be in tune with the risk.

These are known potential harms and systemic challenges for protection insurance. Under the Consumer Duty, insurers and advisers have a responsibility to minimise causing systemic potential harms. Where advisers are undertaking periodic reviews then these issues are likely to be resolved. However, for the vast majority of these old cases, there is no known adviser and hence the responsibility falls to the insurer.

Fortunately, many of the above issues can be addressed with the collection of vulnerability data as part of Consumer Duty implementations. While some firms are relying on individual assessments of vulnerability and just recording if a consumer is vulnerable or not, other firms are now moving to collate detailed data on the consumer characteristics and using technology like the MorganAsh MARS system to do this.

Typically, these systems are using initial questionnaires completed by consumers or advisers that include an understanding of the consumer's marital status and support network.

There is hence the opportunity to cross match these consumer characteristics with existing product information to identify consumers where there are potential harms.

Some of these new vulnerability systems are also including updates from third party data sets that can highlight changes in employment and marital status on an ongoing basis, enabling these policy checks to be replicated.

Ron Wheatcroft, technical manager at Swiss Re commented: “We have highlighted there are over a million new policies a year where no direction of benefits is in place. This means death proceeds from about a third of these may not reach a cohabiting partner, but it is hard to identify which these are. The ability to use the data collected for vulnerability management seems a great opportunity to put in place solid identification of this potential harm.”

Ruth Gilbert, co-author from Insuring change commented: “While protection specialists will look to take these issues on board for new applications and on reviews, there is still around 50 percent of level term policies sold on a non-advised basis where these issues are mostly not being addressed and all the existing policies that are not being reviewed. There are several options for remediating the harms, from referring to advisers or simply proposing customers nominate a beneficiary by endorsement.”

Andrew Gething, managing director of MorganAsh added: “We are using technology to upgrade vulnerability assessments from a subjective individual’s opinion to an objective digital record of a consumer’s characteristics. This opens up the opportunity to match the consumer needs to the products we are providing and look to highlight where there can be improvements like trusts, beneficiary nomination and revision of policy amounts. Using the MARS technology, we can do this in a highly cost effective way, so we can review the large quantities of existing policies in place as well as assess vulnerability at the point of sale.”