Critical illness insurance is designed to pay out if someone is diagnosed with any of a number of specified illnesses. Permanent and total disability benefit is usually offered as part of this cover.
A consumer can take out critical illness insurance as a stand-alone product. Or it might be incorporated within other insurance policies like term assurance (life cover), decreasing term assurance, endowment plans and whole-of-life policies.
Critical illness insurance can be taken out to protect a mortgage – so it is often set up in joint names.
The Association of British Insurers' (ABI) statement of best practice for critical illness cover contains the list of illnesses that critical illness insurance should cover. Definitions of different critical illnesses are generally standardised across the industry.
Critical illness insurance must cover cancer, heart attack and stroke as a minimum – although the exact number and type of other illnesses covered will depend on the particular policy.
Most of the complaints we see about critical illness insurance involve:
A complaint about the way critical illness insurance was sold can sometimes arise from an original complaint about the way the insurer has assessed a claim.
For example, a consumer might say that they weren’t made aware of a specific condition of the cover at the point of sale – which the insurer is now relying on to refuse their claim.
There is more information about our general approach in these situations in our guidance on complaints about misrepresentation and non-disclosure.
When a complaint is referred to us, we will first establish whether the business that sold the policy is regulated by the Financial Conduct Authority (FCA) – or was regulated by the previous regulator, the Financial Services Authority (FSA).
If the business is not regulated by the FCA (or FSA), it would need to have been a member of one of the previous ombudsman schemes – for example, the Insurance Ombudsman Bureau (IOB) or the Personal Investment Authority Ombudsman Bureau (PIAOB) – for us to be able to look at the complaint.
We can generally only consider complaints about advising or arranging contracts of insurance if the event being complained about happened on or after 14 January 2005. So we might not be able to look at a complaint about the advice given at the time of sale or maladministration by an independent financial adviser (IFA) if the policy was taken out before this date.
However, if the policy contains an investment element (like a “surrender value”), we might still be able to look at it – because our powers over arranging or advising on investments began on 1 December 2001.
This is a complicated area – so we will look carefully at the circumstances of each case before we start our investigation.
Following an Office of Fair Trading (OFT) report on health insurance, the ABI issued the first statement of best practice for critical illness insurance in 1999. The aim was to help consumers understand and compare critical illness policies by standardising:
According to the latest statement of best practice for critical illness (February 2011):
"Life and critical illness insurance pays out a lump sum if you either die or are diagnosed with a critical illness that meets our policy definition. We only cover the critical illnesses we define in our policy and no others".
Although the statement has been updated, previous versions are still available. When we look at a case, we will consider whether the business followed best practice in line with the statement from the time the event being complained about happened.
There is more information about the ABI statement of best practice for critical illness insurance on the ABI website.
Since February 2011, businesses must describe certain medical conditions in the following words in their policy literature. The words in square brackets are optional.
In each case, we will consider whether it's likely the policyholder knew that the cover was limited to only certain types and severity of illnesses.
In general, the model descriptions include a reference to the permanent and/or severe nature of the conditions they relate to. But if a consumer complains the condition they have isn’t covered by their policy, we will look to see if there are any exceptional circumstances that mean it would be fair and reasonable to depart from the policy’s definition of that condition.
In cases where the critical illness insurance was taken out some time ago, the policy wording might not include the italicised words which were added in 2006. If this is the case, a consumer might complain that they didn’t realise how restricted the cover was.
In these circumstances, we will consider the information that was available to the consumer at the time of sale. We might tell the business to pay the claim if we think the consumer wasn’t made aware of the restrictions – or that they couldn’t have been expected to know about them.
Some insurers may offer terminal illness benefit under critical illness insurance. Terminal illnes benefit provides protection for the consumer in the event that they are diagnosed with an illness that is terminal. The test applied to decide whether an illness is terminal is usually that the consumer’s disease is incurable and they won’t survive for more than 12 months.
Terminal illness benefit and critical illness insurance can’t both be paid together because they are lump sum payments – and once a payment is made, the policy ends.
Many of the cases we see involve an insurer alleging non-disclosure on the part of a consumer. There is more information about our general approach to complaints about non-disclosure in our online technical resource.
If an insurer rejects a claim because they think that the consumer doesn’t meet the criteria for the policy to pay out, it is the consumer’s responsibility to show that the claim is valid. If a consumer complains to us about a rejected claim, we will look carefully at the medical evidence supporting their claim to decide whether we think the insurer’s decision was reasonable.
In some cases, a consumer tells us that they are “critically” ill and their claim should be met – but their medical condition isn’t listed among the core or additional conditions covered by the policy. We would need to see medical evidence to make a decision about whether the insurer should pay the claim.
Generally, it is unlikely that we will base our decision on a report from the consumer’s general practitioner (GP) or an occupational physician. But we will take particular note of evidence from a consultant specialising in the relevant medical field – especially if they have assessed the consumer’s medical condition against the definition in the policy.
Sometimes, different specialists are involved at different stages of a consumer’s illness – and their opinions about the condition may differ. For example, a surgeon’s opinion may be based on the success of the surgery and post-operative recovery – whereas a consultant might take a different view about the long-term management of the condition.
But it isn’t our role to decide which specialist is right – or to make medical judgements. We can only decide whether there is sufficiently strong medical evidence that the consumer has a certain condition that is covered by the policy.
Occasionally, we might think that an independent medical examination is needed. We generally ask the business to pay for this – although it will depend on the individual circumstances of the case.
Total and permanent disability insurance pays out when someone is totally and permanently disabled and unable to work. It is usually provided as part of critical illness insurance as additional cover for illnesses that aren’t specifically listed.
For a claim to be paid, the consumer must be totally and permanently disabled. Depending on the conditions of the particular policy, they must also be unable to perform either:
A consumer’s disability can also be measured against activities of daily living (ADLs) or activities of daily work (ADWs) – which will be set out in the policy.
To show their condition is “permanent”, the consumer will need to provide medical evidence that they have undergone a significant amount of treatment and/or investigations and that there is no reasonable cure for the disability they have.
We will consider whether the evidence suggests that it is more likely than not that the disability will never improve. We wouldn’t conclude that all treatment options have failed just because the consumer had received alternative therapy like homoeopathy or acupuncture.
If there are other recognised treatments that could result in a cure, we will consider whether it is reasonable to expect the consumer to undergo the treatment. If a treatment is non-invasive or involves only minor surgery, we are more likely to say it is reasonable for a business to ask a consumer to agree to it.
But a consumer can’t be forced to undergo serious or invasive surgery to prove that they have a valid claim. And for some disabilities, such as back conditions, surgery isn’t guaranteed to resolve the problem – and could make it worse.
In cases where a claim has been rejected because a consumer hasn’t agreed to surgery, we will consider the nature of both the condition and the procedure when deciding whether this outcome is fair.
Some insurers also include the word "irreversible" in the policy definition of a disability. This is to help the insurer establish whether the consumer’s disability is permanent – as part of its review of all the treatment that the consumer has received and any that might still be available.
Again, if the only remaining option is major surgery, we will carefully consider the consumer’s reasons for saying they won’t undergo it.
“Total” disability generally means that the consumer is totally disabled from performing the material and substantial duties – but not all of the duties – of either their own occupation, suited occupation or any occupation (depending on the wording of the policy). When we receive a complaint, we will decide whether we think the word “total” has been interpreted reasonably by the insurer.
Where “total disability” is measured against the activities of daily living (ADLs), the consumer will need to provide evidence to the insurer that they are totally disabled from carrying out a number of daily activities – for example, eating, washing and dressing. It is difficult to prove this – and we see many complaints involving unsuccessful claims.
But we will take a reasonable approach. For example, it could be we agree that a consumer isn’t totally disabled from performing three out of six ADLs. But we might still decide that they meet the policy’s definition of disability – because they are significantly disabled from performing all of the ADLs.
If the consumer is on a rehabilitation programme, we can consider the opinion of someone involved with delivering this. We will also consider the effect of any prescribed medication on the consumer’s level of disability. The fact someone takes a significant amount of medication doesn’t automatically mean they are “totally” disabled. For example, with medication, a consumer may be able to carry out daily activities for several hours without pain.
If the insurer provides us with surveillance footage of the consumer, we check that the insurer has given the consumer an opportunity to watch and comment on the surveillance. We might find that the surveillance conflicts with other evidence – for example, from the consumer’s treating consultant. In this situation, we would consider it reasonable for the surveillance to be shown to the consultant as well – so they can give a medical opinion on whether the activities shown in the surveillance are inconsistent with the level of disability the consumer is claiming for.
Once this has happened, we will decide whether we think the footage suggests that the consumer’s actual level of ability is different to the level they have stated. However, we will bear in mind that the consumer may have only brief moments of ability. So we will look at what period the evidence covers and consider all the individual circumstances of the case.
We will also consider whether the activity the consumer is shown carrying out is relevant to the conditions of the policy in question. For example, the consumer may be seen watering their garden – but that doesn’t necessarily mean they are capable of carrying out their own occupation as a bricklayer.
There is more information about the various definitions of disability in our guidance on income protection.
Some cases we see involve events at the time the policy was taken out. Complaints often arise when a claim has been rejected. For example, a consumer might say they were told the policy would pay out if they were diagnosed with a certain condition – and complain when it doesn’t.
In these cases, we will look at all of the available evidence – including both sides’ accounts of the sales process and the pre-sale documentation (including key features, fact-finds, brochures and sales scripts).
We will decide whether we think the medical conditions the policy covered and the criteria for a valid claim were adequately explained to the consumer – orally or in the documentation.
We also see cases where a consumer has been diagnosed with an illness that isn’t covered by their policy. They might complain that if they’d known at the point of sale that the illness wasn’t covered, they would have taken out a policy with another provider.
However, the fact that an illness isn’t covered doesn’t automatically mean that the policy was inappropriate when it was sold. We will carefully consider the consumer’s circumstances and assess whether the policy was suitable.
Some consumers tell us that they were advised to cancel their critical illness insurance and take out a replacement – but have found that although the original policy covered the illness they have claimed for, the replacement doesn’t.
In these cases, we will consider the reason for the change in the policy. It is unlikely we would decide that a cheaper premium alone is a sufficient reason for restricting cover. We will also consider whether the consumer was fully aware of the change in the level of cover.
Generally, we are unlikely to agree that cancelling an existing policy is suitable advice – particularly if the consumer is older and it is potentially more likely that their health will deteriorate.
If we decide that a consumer has been disadvantaged and shouldn’t have been told to cancel the original policy, we may tell the business responsible for the advice to pay the claim in full.
Critical illness insurance is sometimes sold alongside life assurance. However, we hear from consumers who feel that they weren’t told that critical illness insurance was optional – or that they simply didn’t want it. To assess whether the consumer was sold suitable cover, we will look at the sales documentation to decide what we think the consumer’s priorities were at the time of sale.
If we decide – based on the evidence we see – that the consumer's illness falls within the policy’s definition of a listed critical illness or permanent and total disability, we usually tell the business to pay the claim with interest.
If we think evidence suggests that the policy was mis-sold, we might tell the business to cancel the policy and refund the premiums with interest. We might also tell the business to reinstate an earlier policy that was cancelled and pay any claim the consumer has made under it – subtracting any premiums that the consumer would have paid towards the policy if it hadn’t been cancelled.
We generally tell a business to pay interest at 8% simple per year from the date that claim should have been paid (or in the case of a refund, from the date the consumer made payment) until the date that payment is actually made to the consumer. The date on which the claim should have been paid will depend on the terms of the policy.
A critical illness insurance claim can be paid either from the date the medical condition is diagnosed or after a set period of time has elapsed after diagnosis (for example, 14 or 28 days – depending on the policy terms).
In some circumstances, we might decide that interest should be awarded from the date the business would have met the claim had it been notified earlier. For example, the consumer may have been critically ill and unable to make a claim for some time after diagnosis.
Sometimes we decide the business had enough evidence to pay a claim when it was first submitted – but did not. In these cases, we may tell the business to pay the consumer compensation to reflect the wider impact of their delaying the payment. There is more information about our approach to this type of compensation in our guidance on compensation for non-financial loss.
contact our technical advice desk on 020 7964 1400