Rescuing the orphans from your risk insurance client base

Col Fullagar considers the plight of orphan clients who try to make an insurance claim.

Hungry for food, the consummate orphan Oliver Twist famously asked, “Please sir, may I have some more?”

Ask any risk insurance adviser for ways you can help build their business and one of the responses will certainly be a delicious twist on the above: “Orphans? Please sir, may I have some more?”

The adviser is of course referring to orphan clients.

Traditionally, orphans are people who have purchased insurance but their adviser has since left the industry.

However, orphans can also emerge from within the client base of an active insurance adviser when clients are not reviewed and they can even exist in select areas where an adviser is not able to assist a client in that particular area.

Orphans reside in the client base of insurers, licensees and advisers alike.

The attraction of orphans has always been their potential as fertile fields for the writing of new risk insurance premiums and, as such, they are eagerly sought after and on occasions they are the subject of vigorous purchase negotiations.

When we think ‘orphans’, we put on our ‘happy face’.

However, there is another type of insurance orphan that is rarely, if ever, considered, but if we were to think of them, we would put on a different face. They have a far-reaching and, through no fault of their own, an insidious impact on the financial services industry.

They are orphan claimants — that is, people who receive little or no adviser assistance at the time of claim; either because they do not have an adviser or their adviser is unwilling or unable to assist them.

The following true stories highlight their plight.

Geoff’s story

Geoff went on claim some years ago suffering from serious depression.

However, from the start there was a difference of opinion between Geoff and his insurer about how the offset provisions of the policy should be implemented.

Legal debate ensued and continued for almost six years.

One day I received a call from Geoff’s solicitor seeking an ‘expert’ opinion about the ‘intent’ and ‘application’ of the particular clause.

Numerous phone conversations and written reports later, the matter went to mediation and was resolved. Geoff’s benefit payments from the start of the claim to the current date were adjusted.

The solicitor was paid and appropriately moved on.

However, Geoff did not have a risk insurance adviser and so he was now on his own.

Metaphorically, he was standing outside the doors of the claims department of a large insurance company feeling very apprehensive about how they would treat him now that he no longer had any type of support structure around him.

It did not take long for Geoff’s apprehension to turn to reality. The next letter from the insurer spelt out in no uncertain terms the protocols he would now need to follow in regards to the completion of the monthly claim form and the submission of copious financial evidence.

Whether the insurer was being unreasonable or not is immaterial. Geoff felt totally intimidated and that he lacked control over his situation.

The effect on his ‘depression’ was immediate and detrimental.

Terry’s story

Terry was also suffering from depression. However, in contrast to Geoff, Terry had an adviser. Terry’s adviser assisted him to lodge the claim and also helped him with some of the early requirements.

Then matters started to go awry.

The insurer was insisting on a particular claim requirement that both Terry and his adviser reasonably believed would have an adverse effect on Terry’s health. As an aside, sometime later this was confirmed by the treating doctor.

In addition, the claim assessment was dragging out, month after month, without any reasonable explanation.

The problem on this occasion was that the adviser, for all his skills in other areas of financial services, was not experienced in claims management.

As a result, he did not really know how best to assist Terry, and the time he was spending trying to help was “having a material and adverse financial impact” on his business. “It’s not that I didn’t want to help, it was simply getting to the point where I did not know the best way to proceed.”

Both Geoff and Terry were in trouble. They had taken out insurance years ago to provide protection for themselves and their family if sickness or injury occurred, or as advisers often say, they purchased ‘peace of mind’, or so they thought.

The appalling irony was that the very implementation of that protection was having an adverse impact on their wellbeing.

Geoff and Terry are not alone; there are almost certainly thousands of orphan claimants out there. The claims manager from one prominent insurer estimated that 85 per cent of claimants are receiving no obvious adviser assistance.

Implications for clients and advisers

The implications of being an orphan claimant include:

• you have no one to suggest you claim, sometimes leading to delays in lodgement of months or even years;
• you have no one to explain the benefits to which you may be entitled, sometimes leading to benefits being overlooked;
• you have no one to explain the reasons for the various requirements requested, sometimes leading to feelings of confusion and intimidation;
• you have no one to guide and advise you during the claim, sometimes leading to a desire to abandon a claim or seek a lump sum commutation just ‘to be rid of it all’; and
• you are totally reliant on the insurer.

There are also implications for the adviser.

If an adviser does not have the skill set or the financial model that will enable a client to be supported during a claim, the adviser’s financial services guide (FSG) should state that clearly. Silence may not be a defence if a client receives no effective assistance despite the adviser receiving a servicing commission.

Advisers who are intending to support clients on a claim must have a way in which they can do so without adversely affecting the financial viability of their business.

Previous articles ‘Nurturing higher standards in claims management’ (MM, September 18, 2008) and ‘Unlocking profit-based commission’ (MM, May 21, 2009) provided some ideas.

Advisers should consider the ‘value-add’ provided by a licensee that is able to offer claims management assistance.

If the adviser is looking to embrace fee-based remuneration, how better to justify a proportion of the fee than to allocate it to claims support and set out specific details of what support will be provided — for example, as referenced above under ‘implication for clients’.

Orphan claimants are a real problem, which will not be solved by ignoring it. It will only be solved when it is recognised and the financial services brains trust, aka advisers, insurers, licensees, and so on, start to consider, implement and adjust solutions.

Insurers can accurately cite the total dollars paid each year to claimants and the amount is around $2 billion, so why is it that the financial services industry is not placed on the pedestal it deserves?

Perhaps the issue is not how much is paid but how it is paid. For many, the claims process is fine but for some it is not. The many tend not to talk while the few do.

Perhaps the Achilles’ heel of the financial services industry is the shortage of adviser support in the area of claims management, creating a huge virtual orphanage of claimants.

Consider the orphans!

Note: Both Geoff and Terry did receive some assistance to resolve their immediate problems. Amicable negotiations are being held with Geoff’s insurer in regards to the claim requirements.

Terry’s claim has now been paid, but by virtue of the nature of the assistance, it is unfortunately impractical for it to continue long term or be implemented in anything other than a few individual situations.