Insight article

Restrictive insurance policy wordings do not appear to be a key driver of low acceptance rates

We commissioned Fairer Finance to look into the relationship between insurance policy wordings and acceptance rates. In general, it did not find a strong relationship between them. We think this means that other factors are more significant drivers of low claims acceptance rates.
4 min read
Alex JenkinsSenior Economist

The FCA’s general insurance values measures data shows a wide variation in claims acceptance rates between providers of home and travel insurance. Some variation across an industry of this size and complexity is to be expected, but the size of the variation concerned us.

Acceptance rates in buildings only insurance ranged from 30-35% to 80-85%, from 50-55% to 95-100% for combined buildings & contents policies, and 55-60% to 95-100% for contents only policies. 

Similar variation is seen in travel insurance, where claims acceptance rates ranged from 70-75% to 90-95% for annual European cover, 60-65% to 95-100% for annual worldwide cover, and 60-65% to 90-95% for standalone single trip insurance.

It’s clear from the data that your choice of provider makes a significant difference to the chances of making a successful claim in the event of something going wrong in your home, or whilst away on holiday.

We hypothesised that one explanation for the variation could be the specific policy wordings used by providers. For example, one provider may use very specific or restrictive terms and conditions and could use these to reject more claims, whilst another may have broader, more flexible terms and conditions which mean claims are more likely to be accepted.

In order to test this hypothesis, we commissioned Fairer Finance to conduct a detailed review of policies and assess whether there was a relationship between claims acceptance rates and the restrictiveness of the terms and conditions.

Methodology

Brand selection

Fairer Finance took a comprehensive but pragmatic approach in selecting which brands’ policies to review. Using the FCA’s general insurance value measures data, it identified underwriters with the highest and lowest claims acceptance rates across home and travel insurance. It then identified corresponding customer-facing firms, filtered out firms where it did not have access to policy wording from 2023, or where the firm is primarily known to provide niche or specialist insurance. This resulted in 21 providers across home and travel.

Text an​​​​alysis

Fairer Finance identified a series of themes where there are frequent misunderstandings or rejected claims. It identified 12 themes for home insurance and 10 for travel. It looked for material differences within the policies relating to the key themes, for example, whether providers had narrower levels of cover and, if there were differences, whether they aligned with higher or lower claims acceptance rates.

Quantitative analysis

In addition, Fairer Finance used a combination of public and proprietary data to examine the relationship between various metrics of quality and satisfaction, and claims acceptance rates.

Key findings

Overall, Fairer Finance found limited evidence to suggest that the specific wording of policies was a key driver behind the variation in claims acceptance rates. Across the 21 providers and 22 themes, it identified just two instances where more restrictive policy wordings aligned with low claims acceptance rates; storm damage and connecting flights.

Storm damage

It found stark differences between the policies of firms with high and low acceptance rates relating to storm damage. Firms with higher acceptance rates tended to have broader, more inclusive definitions of a storm, whereas firms with lower acceptance rates tended to use specific numeric definitions. This was highlighted by the FCA in its recent claims-handling report.

Connecting flights

It also identified an issue regarding connecting flights in travel insurance. Two firms with high claims acceptance rates clearly detail coverage and exclusions for connecting flights in dedicated labelled sections. In contrast, two firms with low acceptance rates only reference connecting flights vaguely under “Public Transport” and did not clearly state if missed connections were covered or not.

In contrast to our expectations, Fairer Finance found many more instances where policies contained very similar or identical clauses and terms across firms with very different acceptance rates.

For example:

  • All firms who offered accidental damage in home insurance made it clear. There was very little difference in the presentation of this across the policies.
  • Clauses related to unoccupied premises were presented consistently and clearly across all policies.
  • Medical claims notification clauses were nearly identical across all providers of travel insurance, with all providers requiring notice “as soon as possible”.
  • There were no meaningful differences in the terms relating to sports and activities.

Conclusion

In our view, this suggests that overly restrictive policy wordings are unlikely to be a key driver in the variation in claims acceptance rates and so there must be other factors at play. We suspect that weak claims governance and poor claims handling processes, as identified in the FCA’s claims-handling report, are more likely drivers of the variation in claims acceptance rates. Rather than the specific policies themselves, it’s the providers’ application of them that is having a more significant impact on consumers.