Life insurers have been told to settle death claims quicker and improve how they monitor claims times or face further action by the Financial Conduct Authority (FCA).
It demanded significant improvements with many insurers failing to meet performance levels, called for industry-wide approaches to tackle common concerns and challenged insurers to reflect on the standards they set and quality of outcomes.
And it demanded that claimant service should be as good as that for sales.
The FCA emphasised that service level agreements were often overly long and inconsistently applied and recorded across the same insurer while service performance could fluctuate with some firms reporting up to a year of levels not being met.
From what data was available, the regulator found life claims took on average between almost two months and four months to pay for term insurance and just over a month for group life claims.
For over-50s plans payment times were around three weeks while for whole of life policies it was around less than two months.
The regulator was sympathetic to some wider economic and working issues affecting insurance providers and good practice from some providers, but overall it was unhappy with the service being given to death claimants.
“We want to see a step change improvement in consumer outcomes across the industry for the bereavement claims process,” the FCA said.
“We would encourage and support an industry-led effort to reduce and consistently measure claim journey times, and to collectively tackle any common challenges found in the bereavement claims process.”
The regulator added that it expected firms to give full consideration to the consumer support outcome of the Consumer Duty.
“In the case of a bereavement claim, this means meeting the needs of customers to access quality and timely support particularly when they may be considered to be vulnerable,” it continued.
“The service and support provided should be as good as that provided for the sales process.
“We would challenge firms to reflect on the service standards they set themselves for bereavement claims, and whether their attainment of these is really enough to result in good outcomes for consumers,” it added.
Advisers have also told Health & Protection that claims service can be inconsistent and should be sped-up, particularly with the use of technology and automation.
Performance not meeting expectations
The FCA’s multi-firm review requested data from 15 life insurers, representing more than 75% of the life protection market in the term insurance, group life, guaranteed over-50s and whole of life product areas.
It followed-up the scathing letter sent to life insurance CEOs in September 2023 which highlighted several flaws in the market.
In the letter, the regulator highlighted that firms should take a holistic view of their service levels, have a clear view of the standards they are trying to achieve, and make sure customers receive good outcomes.
The latest review found that firms took on average between 53 and 122 days to process a term insurance claim from start to finish.
For group life cover it was within 36 days, for over-50 plans it was 20 days, and it was 53 days for whole of life, however, the FCA added measurement was inconsistent as few firms captured these figures.
The FCA noted that most firms were unable to meet some of their own bereavement claims process service level agreements (SLAs) within the period looked at.
Claimants were therefore likely to be experiencing delays resulting in poor outcomes and customer harm.
“Firms also reported extended periods, of up to 12 months in some cases, where several SLAs were not consistently met,” the FCA continued.
“Based on the firms’ own management information, it is possible to infer that most firms had delivered a level of service to some of their customers which fell below the firms’ own expectations.”
SLAs need considerable improvement
Regarding the implementation and monitoring of SLAs specifically, the FCA said there was “considerable room for improvement”.
Firms were found to measure SLAs for the delivery of the bereavement claim process differently and this could even differ between in-house and third-party outsourcers delivering the same process.
“Where SLAs are not the same across a business, it reduces a firm’s ability to clearly compare the outcomes,” the FCA said.
“Although we saw some SLAs set at ambitious levels, we also saw SLAs set at thresholds that were never likely to be breached, and that could not reasonably be considered to represent good service outcomes.”
It added: “We expect firms to continue to challenge their claims practices, service standards and delivery to ensure that appropriate customer outcomes are achieved.”
Proactive approach needed
The FCA did recognise there were some mitigating circumstances where service performance had dropped.
It noted that each firm identified similar challenges, particularly in relation to resourcing and documentation, that had an impact on the ability to meet service performance levels.
And it welcomed the finding that all firms provide support services for claimants throughout the bereavement time.
However it noted that some firms were taking a more proactive approach to mitigate these challenges and added that the services offered and practical actions taken by firms to monitor outcomes, would help them to better support and understand the needs of customers.
And while some firms explained how they undertook process reviews and made improvements to the customer journey time, the FCA said there was “little evidence of industry wide step changes being made to the bereavement claims process”.
“Our review suggested considerable positive intent within firms to continuously improve customer outcomes in the bereavement process, and the initiatives observed to do so are welcome,” the FCA continued.
“However, there was far less evidence of an urgency to tackle some of the major barriers to making fundamental improvements in customer service and outcomes, such as addressing resourcing constraints and arrangements.”
The FCA added that it was likely to undertake future work in this area to understand what improvements had been made to reduce claim journey times.
It will also continue to monitor how firms are demonstrating the higher standards, including those relating to customer support, that the duty expects.
The FCA has already announced a market study into the retail distribution of pure protection products which it will begin in the first quarter of 2025.