Life - Articles - Life Cover Payouts Changing Direction

In 2019 Swiss Re highlighted the registration threat that anti-money laundering legislation brought to trusts, namely unintended consequences meaning that claimants under life assurance or life and critical illness policies may not be able to receive the proceeds their partner had intended for them.

 The attached update, to be released on Wednesday and produced jointly by Swiss Re and Insuring Change, examines how events of the past 12 months have unearthed a number of new issues which are likely to be exacerbated as we move through 2021, and considers how changes to purchasing preferences and social norms need to be taken into account by insurers and intermediaries to ensure policy proceeds reach the intended beneficiaries efficiently when a death claim is made.

 Key risks which have increased further include:
 • % of unmarried individuals – the % of couples who are cohabitees rose again in 2019. They accounted for one in four of all couples under 65 and over one in three of all under 45. In 2020, COVID-19 restrictions deferred many weddings, so we expect this number to increase further.
 • % of single life policies ? inched up again in 2019 to 76.6% overall (from 76.0%), and nearly 90% of all level life cover. As COVID-19 pushed more people online in 2020, where single life and non-advice options are simpler, we can expect this and the non-advice percentage below to have increased further.
 • % of non-advice level term life ? 47.3% across 2019 data provided by Term & Health Watch 2020 respondents (vs c.45% estimated for 2018).
 • Additional pressures ? big probate delays in 2020, FCA and FOS requirements, and increased digital process expectations from intermediaries and customers.

 Ron Wheatcroft, Technical Manager at Swiss Re commented: “It’s been encouraging to see insurers and intermediaries alike taking steps to protect themselves and their customers from the risks of life cover proceeds not being available to the intended recipient. But there is still a long way to go.

 “Ahead of investment in designing and implementing online trust or beneficiary nomination solutions, there are various low-tech improvements that can be made to encourage correct policy setup. Fundamentally, we need to put accurate policy setup on the same footing as other product basis choices. Who we pay, and how soon, really matters to customers, so how we communicate this is vital. Addressing some of the widespread flaws in current communication could make a big difference.

 “When it comes to existing business, customer engagement after the sale of the life policy is currently poor compared to other industries. The desirability of annual benefit statements has already been highlighted as a way insurers and advisers can remind customers of the benefits of their cover, so taking steps to review and improve this should be a key priority moving forward.

 “2021 would be a great time to remind customers of the benefits of cover and encourage keeping it in force, whilst also inviting them to consider if their cover needs any adjustment to better meet their needs – including, of course, whether they have made arrangements for the policy to go directly to the people they intend. In particular, the new style of trusts should make this a great deal easier than those needing trustee and witness signatures.”

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