ADL deadlock as protection providers juggle other priorities

Industry-wide move to own occupation looking unlikely in short-term

Consumers could face a long wait before other providers follow Aviva’s lead and offer more income protection (IP) policies on an own occupation basis.

Last month Aviva overhauled its IP policy, reviewing the list of jobs it will insure on an own occupation basis so that 95% of occupations will now be underwritten in this way rather than on a suited occupation basis or according to activities of daily living (ADL) or other list-based criteria.

IP policies underwritten on an ADL basis – where claimants must prove they are unable to complete two or three basic physical tasks from a list – have come under heavy criticism in recent months, following several cases where such policies have not paid out.

Following Aviva’s announcement, other providers such as Bright Grey and Scottish Provident have said they are looking to review their policies in a similar way, but commentators say an industry-wide movement will be difficult to achieve.

Tom Conner, head of protection at Drewberry Insurance, the specialist London-based financial adviser, said: “The ADL definition is highly restrictive and offers a very poor level of cover, as someone would have to be pretty much bed-bound for this type of policy to pay out.

“Many providers are taking a closer look at the occupations they cover under own occupation as they want to remain competitive and also because they are coming under pressure from the recent negative press coverage on ADL definitions.”

But he added: “I don’t think providers will ever stop offering ADL definitions unless their hands are forced, because there are certain risky occupations such as construction jobs that they simply do not want to insure on an own occupation basis.”

Jerry Brown, the former head of underwriting and claims at reinsurer Swiss Re, said he only expects to see gradual changes from other providers over the next year or so.

He added: “There is no consensus on the issue at the moment so I doubt the Association of British Insurers [ABI] will get involved. The best thing that could happen would be if providers were forced to publish claims statistics for IP in the same way they do for critical illness [CI].”

But Roger Edwards, proposition director at Bright Grey and Scottish Provident, said it would be difficult for providers to publish IP claims statistics because of discrepancies between different firms’ policies.

He said: “With CI, in most cases the claimant either passes the definition or they do not, but with IP there are lots of potential ambiguities such as the fact that some insurers reassess definitions after the first year of a claim.”

Edwards said Bright Grey and Scottish Provident are reviewing their occupational databases to see how many other jobs could be moved into the own occupation category and at what cost.

He said: “Price is a key issue that has been largely missed from this debate. I would love to be able to offer everyone own occupation but for some people it will not be affordable.

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