UK mutuals pay out more than £34m in income protection claims

‘Our latest statistics show mutual providers can best support you, in both the short- and the long-term, as they pay the vast majority of claims’

Members of the Association of Financial Mutuals (AFM) that offer income protection paid out 94.1% of claims received in 2021, up from 93.9% the previous year, figures reveal.

In total, AFM says its providers paid out around £34m in claims to 10,300 policyholders in 2021 (including nearly 8,200 new claimants). There had been a spike in new claims in 2020, and the 2021 volume represents a 17% fall, although the figure isl still 5% higher than before the pandemic. 

Despite the reduction in the number of claims, Covid-19 continued to have a prominent effect, with claims related to the virus accounting for 20% of all claims – compared to around 25% in 2020.

While the volume of new claims fell 17%, the actual value paid fell only by 7%, indicating that there was a larger volume of long-term payments in the year, and that the costs of claims are rising.

Musculoskeletal problems were the most common reason for claiming, amounting to 31% of claims in 2021, with Covid claims (20%) and mental health (9%), the other most frequent reasons.

The relatively small number of claims rejected were typically as a result of not disclosing key information at the point of application or claim (39%), or for a claim that is either for an excluded condition, or is outside the scope of the policy (37%). This highlights the need for customers and intermediaries to provide full and frank information as early as possible when completing an application or submitting a claim, says AFM.

While 5.9% of claims were rejected overall, only 3% of Covid claims were not paid, which AFM says shows “the particular value of a friendly society provider, as many of their policies will cover short-term illnesses”.

Mutuals may have a deferred period of one day or one week, compared to typically three months or more for a non-mutual, it adds.

Martin Shaw, CEO of AFM

AFMS says the mutual product is particularly important if the illness means there is no early way to return to work; in 2021, the average claim on a full income protection policy ran for 29 weeks, though many claims ran for considerably longer: in 2020, one in seven claims ran for more than two years.  This means that families that would otherwise be forced to rely on State support only, can maintain their standard of living during a protracted illness.

Martin Shaw, chief executive of AFM, added: “The cost of living crisis, fuelled by rising bills and high levels of inflation, is a source of concern for every family. There has also been a steep rise in the number of working-age people suffering long-term illness in the last two years (more than a third of workers according to the Office for National Statistics. 

“Together, these forces are encouraging more people to consider buying an income protection policy. Our latest statistics show mutual providers can best support you, in both the short- and the long-term, as they pay the vast majority of claims.”