The Undisclosed Diabetes and the Income Protection Claim
A 47-year-old self-employed graphic designer applied for a 20-year income protection policy with a £3,000 monthly benefit and a 13-week deferred period. The application asked: 'Have you in the last five years had, or been treated for, diabetes, high blood pressure, heart disease or any disorder of the kidneys?' She answered 'No'. In fact she had been diagnosed with type 2 diabetes 18 months earlier, was on metformin, and her GP records showed two elevated HbA1c readings. She did not consider it 'serious' and says she forgot. Eleven months after inception she suffered a stroke, is unable to work, and claims. The insurer obtained GP records and is considering avoidance for non-disclosure. The policy contains a standard misrepresentation clause and a three-year incontestability provision.
1. Advise the insurer on whether it can avoid the policy, applying the tests for materiality and inducement.
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Two statutory tests govern: materiality and inducement.
Materiality. A fact is material if a prudent insurer would want to know it in assessing the risk. Type 2 diabetes with active medication and elevated HbA1c is plainly material to an income protection underwriter: it affects morbidity, stroke risk, and the likelihood of a long claim. The question was specifically drafted to capture it, which reinforces materiality.
Inducement. The insurer must show it would have acted differently - declined, excluded diabetes-related conditions, loaded the premium, or imposed a longer deferred period - had it known. The underwriter should produce the actual underwriting manual entry for type 2 diabetes at this age and benefit level. If the manual says 'decline' or 'postpone', inducement is strong. If it says 'standard with annual review', the insurer may only be entitled to a lesser remedy.
The 'forgot / not serious' defence. Forgetfulness does not defeat materiality, but it bears on whether the answer was dishonest or merely careless. That distinction matters for remedies and for any future conduct issue.
Remedy. Under a proportionate-remedies regime the insurer cannot simply avoid if the misrepresentation was careless rather than deliberate. It should place the insured in the position she would have occupied had she answered truthfully: if the manual would have imposed a diabetes exclusion, the stroke claim may still be payable if the stroke is not a diabetes-related condition under the exclusion wording. If the manual would have declined, avoidance may be available, but the insurer must be prepared to justify that outcome. The three-year incontestability clause does not yet bite at eleven months, but it will limit future challenges after year three.
2. The insured argues the stroke is unrelated to diabetes and should be paid regardless. How should the claims team respond, and what reserve is appropriate?
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The claims team should separate two questions that the insured is conflating: (1) is the policy voidable or remediable for non-disclosure, and (2) is the stroke a covered event?
On coverage. A stroke is a bodily injury/illness causing incapacity; it falls within the insuring clause unless excluded. Diabetes-related exclusions typically capture conditions 'arising from or attributable to' diabetes. A stroke is not automatically diabetes-attributable, but where the insured has poorly controlled diabetes with elevated HbA1c, a medical officer may conclude the diabetes materially contributed to vascular risk. The team should obtain a medical opinion rather than assume.
On remedy sequencing. The insurer should not pay first and argue later. It should issue a reservation letter setting out the non-disclosure, the material facts, the underwriting decision it would have made, and the remedy sought. It should invite representations. If the proportionate remedy is a diabetes exclusion, the stroke may still be payable if the medical evidence shows no diabetic contribution; if the remedy is avoidance, the claim falls away but the insured retains a right to challenge.
Reserve. A prudent reserve should reflect the gross claim (monthly benefit to age 65, discounted for the deferred period) plus a defence/legal loading, and should be held at the undiscounted level until the remedy question is resolved, because a successful avoidance releases the reserve while a proportionate remedy may still leave a substantial payable. The reserve should be reviewed at each stage and documented with the reasoning, not simply set at the claim value.