Justice CommitteeWritten evidence from the Association of British Insurers
1. The ABI is the voice of insurance, representing the general insurance, investment and long-term savings industry. It was formed in 1985 to represent the whole of the industry and today has over 300 members, accounting for some 90% of premiums in the UK.
2. Executive Summary
2.1 The ABI believes that the current system does work effectively in conjunction with the measures that the insurance industry itself has put in place (see below) to ensure that life insurance payments are paid without delay. We understand, following meetings with Missing People, that they have been speaking to the banking industry about the issue of taking over bank accounts to ensure that important direct debits continue, yet cancel other direct debits, such as gym membership, to ensure that funds remain.
2.2 This is an issue which the insurance industry would like addressed as it affects the continuing payment of premiums and can cause policies and the cover provided to lapse. We are working with Missing People to produce a leaflet explaining the process, which can be given to relatives and friends to help resolve a missing person’s insurance affairs.
2.3 The industry has introduced (with support from the Law Commission) an initiative that means for straightforward estates the claim can be paid promptly to the beneficiary helping to avoid hardship, especially for families on lower incomes who have few other assets available to rely on. This can also be applied to the infrequent cases of missing persons presumed to be dead.
2.4 If a change is implemented there would be an increased risk that ‘‘going missing’’ may become more common if access to insurance funds without a “body” becomes easier and this may lead to an increase in fraudulent claims.
3. Does the current system work effectively?
3.1 The ABI believes that the current system does not work well with allowing friends and families access to manage financial affairs. This can result in lapsed policies, for example, lapsing house and contents insurance would leave properties uninsured. The ABI understands from its meetings with the organisation Missing People that it is in discussion with the banking industry about the issue of relatives and friends taking over bank accounts to ensure that important direct debits continue. This is a problem which the insurance industry would like to see addressed as it affects the continuing payment of premiums and can cause policies and the cover to lapse.
3.2 Where insurers are directly involved the ABI considers that the current system works effectively. Insurers generally find that each case is quite different, but have put in place processes to ensure that life insurance payments are paid without delay and people get the payments they need.
3.3 The insurance industry recognises that speed is important and has introduced new guidelines when waiting for probate, a common cause of delay. This process works provided it is possible to establish the cause of death.
3.4 If there is no body then insurers will look for whatever evidence they can find and if there is evidence that clearly points to death then insurers will accept this. For example, during the South East Asian tsunami an insurer was notified of a claim for a married couple whose bodies were never found. The claims were paid after four months when the insurer received confirmation from the government that they were officially listed as missing and presumed deceased. As a further example, a claim was made on a man who it was said had died in a plane crash in Africa, but there was no body. The plane crash made news on many media websites and after a few weeks the insurer received confirmation from the airline that he had been on the flight and the claim was paid.
3.5 The ABI understands that a Presumption of Death Act for England and Wales would also introduce a register of those presumed dead and a requirement for the “trustee” to take out indemnity insurance to cover the missing person’s property and money. Feedback from ABI members is that claims arising from this situation occur very infrequently. Their feeling is that a register would not help alleviate fraud as there is not usually a multiple claim and that insurers already have their own fraud registers in place.
4. Does the current system create difficulties for families, and if so, how can these be resolved?
4.1 Life insurance pays out a lump sum after the insured person dies helping families to cope financially. Insurers recognise that situations such as those presumed dead or missing are particularly stressful and distressing for relatives and loved ones; as such they aim to deal with each case as quickly and sensitively as possible.
4.2 The industry has introduced a “fast track indemnity process” that means for straightforward estates the claim can be paid promptly to the beneficiary helping to avoid hardship, especially for families on lower incomes who have few other assets available to rely on. This approach can also be applied to the infrequent cases of missing persons presumed to be dead, and can equally be used in England and Wales, as well as Scotland and Northern Ireland.
4.3 There can be many legal issues to be resolved when someone dies. Depending on the circumstances, probate for example, this can mean that it takes a long time for life insurance companies to be able to pay out the proceeds. People who have lost loved ones have often had to wait months for life insurance payments.
4.4 The insurance industry recognises that financial hardship can arise due to the lengthy legal process associated with winding up a person’s estate. Whilst the same legal process applies to all assets, an early life insurance payout can help reduce financial hardship until other assets become available to dependents and family members.
4.5 Insurers have developed a new process to enable them to pay out relatively small amounts to claimants without waiting for probate, subject to certain conditions, including the completion of an indemnity agreement by the claimant.
4.6 The ABI published guidance earlier this year to encourage more insurers to adopt these processes and help reduce the financial hardship associated with delays arising from the legal process of winding up a person’s estate.
4.7 The “fast track indemnity process” set out in the ABI guidance can be applied to a substantial proportion of life insurance claims for both new and in-force single life policies. We believe the process is simple for customers to understand and relatively easy for insurers to implement. It has been developed with the assistance of the Law Commission.
5. What can we learn from the experiences of Scotland and Northern Ireland which have Presumption of Death Acts?
5.1. The ABI would prefer to keep the current approach in conjunction with the initiative that the ABI has introduced.
6. Is there a need for legislative or procedural change in England and Wales? If so, what form should these changes take?
6.1 The combination of an increasingly difficult economic climate combined with increasingly fluid travel habits, may result in “going missing” becoming more common if access to insurance funds without a “body” becomes easier. A change in process would increase the risk that the monies are paid out which may at some point in the future need to be repaid.
6.2 Insurers must be very careful with the data they hold. Their customers have entrusted this data to them. The Data Protection Act (DPA) governs how insurers use data and can prevent insurers from disclosing information. This may create barriers and delays if the insurer is contacted by somebody who isn’t the policyholder.
6.3 ABI members believe that the restrictions imposed on them by adherence to the DPA should not be used as a “blanket” blocking mechanism, but while striving to assist relatives where possible the person missing or presumed dead has a right of confidentiality which needs to be protected and fraud avoided.
6.4 A solution may be to establish a streamlined method of appointing a Power of Attorney or “guardian” where someone is presumed dead or has been missing for a certain amount of time (policies generally lapse 30 days after non payment of the premium). This would also overcome the problem of handling a missing person’s financial affairs, for example their bank account and ensuring important direct debits continue to be paid whilst cancelling other direct debits such as gym membership or Sky subscription. This would ensure that a property remains insured and maintains life insurance premiums.
6.5. The ABI and Missing Persons are collaborating to produce a leaflet explaining the process, which can be given to relatives and friends to help resolve a missing person’s insurance affairs.
September 2011