FCA review: terminal illness benefits in life insurance products

FCA has published the findings from its review of terminal illness benefits within life insurance protection products. A terminal illness benefit provides an early lump sum pay-out of a life insurance policy where the insured is diagnosed with a terminal illness and is expected to die within 12 months. Customers seeking to make terminal illness claims are therefore likely to be extremely vulnerable and may need additional support from their insurer.

FCA was made aware of cases where such customers experienced unfair outcomes. It therefore launched a review to consider life insurers’ practices alongside Consumer Duty implementation to assess whether they were acting to deliver good customer outcomes in respect of terminal illness benefits. Whilst FCA did not find anything to suggest that firms are routinely delivering poor customer outcomes for terminal illness benefits, it did highlight opportunities for improvement and the FCA’s expectations in the following key areas. The review also sets out examples of good practice:

• requirement for 12-month prognosis of death given by a medical practitioner;
• quality of the claims process and management information – firms should assess a range of claims MI, including pre-claim enquiries;
• claims handling timeliness – FCA expects firms to consider whether their claims and pre-claims handling processes are sufficiently proactive and flexible to meet the standards required by the consumer support outcome under the Consumer Duty;
• firms’ use of internal medical experts
• potential conflict between the actual claims process compared with that set out in the policy wording – policy documents should be clear as to how the claim decision is to be made and who will make it;
• removal of the terminal illness benefit towards the end of the policy term – FCA expects insurers to review the suitability of policy terms which prohibit terminal illness claims in the last 12 months of the policy. Insurers retaining such terms should have a clear basis for how these are consistent with the Consumer Duty outcomes.

FCA expects all life insurance manufacturers and distributors to consider the findings and take immediate action where they fall short of FCA requirements.