Policy administration, claims and servicing in life and pensions
Domain 4 - Policy administration, claims and servicing. The exam tests the policy lifecycle: underwriting and disclosure, alterations, cancellations, claims decisions, trust payments and complaints.
New business and disclosure
Consumers must take reasonable care to answer insurer questions honestly and completely under the Consumer Insurance (Disclosure and Representations) Act 2012. Remedies depend on the type of misrepresentation: deliberate or reckless - the insurer may avoid the policy, refuse the claim and keep premiums; careless - a proportionate remedy (policy rewritten on the terms that would have applied, or the claim reduced); innocent - the claim is paid. Commercial clients fall under the Insurance Act 2015 duty of fair presentation, with proportionate remedies for breach.
Servicing
Cancellation rights are 14 days for most life policies and 30 days for pensions and annuities under ICOBS 7.2, with premiums refunded. Servicing includes premium collection, reinstatement of lapsed policies, increases and decreases in cover, fund switches, partial encashments within the 5% allowance, assignment (absolute or by way of security), and placing policies in trust. Discretionary trusts with an expression of wish let trustees decide who receives death benefits, keeping the payout outside the estate and avoiding probate delay.
Claims
Claims require notification, proof (death certificate, medical evidence, earnings evidence for income protection) and checks on cause of death, suicide exclusion periods, terminal illness and critical illness definitions. Income protection claims must satisfy the deferred period and ongoing earnings tests. Where a trust exists, pay the trustees, not the estate.
Worked example
A customer dies from lung cancer. Underwriting shows he smoked 15 cigarettes a day but answered 'non-smoker'. This is a careless misrepresentation. The insurer asks what it would have done: it would have declined cover. Under CIDRA the contract is treated as never entered into, the claim is not paid and premiums are refunded. If it would instead have rated the premium by 75%, the claim would be reduced proportionately.
Traps
Do not apply avoidance to careless misrepresentation; do not confuse the 14- and 30-day cancellation periods; do not pay trust claims to the estate; do not ignore chargeable event reporting on surrenders; remember the eight-week complaint deadline and six-month FOS referral window.