New income protection (IP) claims declined in 2021 but there were more long-term payments and the cost of claims increased, according to data from the Association of Financial Mutuals (AFM).
AFM data reveals its members that offer income protection products paid out 94.1% of claims in 2021, up from 93.9% the previous year.
In total, mutals paid out around £34m in claims to 10,300 policyholders in 2021, including almost 8,200 new claimants.
While 2020 saw a spike in new claims, 2021 witnessed a 17% fall on the previous year, albeit this was still 5% higher than before the pandemic, and Covid-related claims accounted for 20% of all claims – just 5% down on 2020.
However, despite the 17% fall in numbers, the value paid by mutual insurers reduced by just 7%, indicating there was a larger volume of long-term payments in the year, and that the costs of claims are rising.
Musculoskeletal problems accounted for the most common reason for claiming, amounting to 31% of claims in 2021, with Covid (20%) and mental health (9%), the other most frequent reasons.
In 2021, the average claim on a full income protection policy ran for 29 weeks, though many claims ran for considerably longer: in 2020, one in seven claims ran for more than two years.
Only 3% of Covid claims rejected
Rejected claims were typically as a result of not disclosing key information at the point of application or claim (39%), or for a claim that was either for an excluded condition, or was outside the scope of the policy (37%).
While 5.9% of claims were rejected overall, only 3% of Covid claims were not paid.
Martin Shaw, chief executive of the AFM, said: “The cost of living crisis, fuelled by rising bills and high levels of inflation, is a source of concern for every family.
“There has also been a steep rise in the number of working-age people suffering long-term illness in the last two years (more than a third of workers according to the Office for National Statistics). Together, these forces are encouraging more people to consider buying an income protection policy.”