Life insurance can be used as a tool of economic abuse, but there are ways life insurance firms can ensure this isn’t the case, according to a recent briefing.
Surviving Economic Abuse’s (SEA) Life Insurance and Economic Abuse briefing explains: “Economic abuse can be understood as the control of a partner’s or ex-partner’s money and finances, as well as the things that money can buy and often occurs within the context of intimate partner violence. This includes exerting control over income, spending, bank accounts, insurance cover, bills and borrowing, as well as employment.”
In 2021, economic abuse was recognised in the statutory definition of domestic abuse in the Domestic Abuse Act for England and Wales. This act also for the first time recognised banks and building societies as stakeholders, meaning that UK financial services now have an interest in signing the Financial Abuse Code and improving responses to financial abuse.
Moreover, due to UK Consumer Duty laws, “insurance providers have an obligation to prevent foreseeable harm to vulnerable customers, including victim-survivors of economic abuse, through their products and services”.
Professor James Davey, University of Bristol, co-author of the briefing stresses the importance of tackling this issue for life insurance firms.
“There are numerous reasons why facing this problem is the right thing to do,” he says. “First, because the truly vulnerable are at risk and it is the right thing to do. From a business perspective, willing engagement with the ‘Consumer Duty’ in areas of vulnerable customers was already set as a regulatory priority. The proposals are likely to provide genuine support and assistance – and without overly increasing compliance costs. This might be broadened into a wider discussion of what kinds of sales are to be promoted, and those which might be less desirable.”
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Life insurance and economic abuse
SEA’s briefing explains how life insurance policies can be used in a coercive and controlling way that can cause economic and physical harm to victim-survivors. Joint life insurance policies, for example, can be susceptible to being used as mechanisms of abuse as the abuser can still benefit economically from the death of the victim even if they are now separated.
The report notes that there have been examples of abusers taking out policies in the name of the victim without their consent and then threatening to kill victim-survivors to financially profit from the life insurance policy.
As joint life insurance policies often cannot be terminated without the consent of both parties, perpetrators can still use them as a mechanism of post-separation abuse by refusing to terminate a linked policy. This can reduce victim-survivors’ abilities to gain financial independence and autonomy over their lives.
Although this may seem extreme, the briefing highlights that a woman is killed by a partner or ex-partner in England and Wales every four days.
The report states: “In the eyes of the law, spouses are automatically assumed to have unlimited interest in their partners’ lives, so they can take out life insurance against them without them necessarily being a part of the contract.”
It adds that there is a big lag in legal precedent as “insurance contracts today, are largely subject to 18th and 19th-century law” when women were viewed as the property of men within marriage. While this highlights the great need for statutory reform, insurance firms can take action before the law changes.
Recommendations for life insurance firms
Davey explains: “In terms of implementation, some of what will be required – such as the mandatory surrender of life assurance policies – can probably only occur after legal or regulatory change. Much of the advice from SEA can be implemented before that, to limit the number of future cases.”
The briefing makes several recommendations for how firms can adapt their policies and practices to avoid economic abuse being enacted through their products.
“We could usefully distinguish two forms of intervention here,” says Davey. “The first set seeks to identify those currently at risk (by staff training etc) to prevent insurance policies being sold over the lives of those who are suffering economic abuse. This is prevention of future cases, insofar as it is possible.
“Here, the sale of policies without the willing and active involvement of the person who is to be insured is the issue. Detection of problem cases is not likely to be perfect but can be improved.
“The second set relates to removing cover that has already been sold. That is more difficult.”
The SEA suggests the following five recommendations for insurance firms:
- Establish mechanisms for joint policies to be cancelled or replaced with individual policies to reduce the risk of harm to the victim-survivor of economic abuse;
- Proactively seek to close opportunities for life insurance policies to be taken out in joint names without one party’s expressed consent or knowledge;
- As standard practice, set up life insurance cover on a single life basis, placed in Trust where appropriate with a minimum of three trustees appointed. Trustees should be made aware of their duties and responsibilities, including economic abuse awareness;
- To develop domestic abuse policies that are prominently displayed on their websites, so victim-survivors know how their insurer can support them in response to economic abuse. This should be supported by domestic abuse training for advisors who are offering support to victim-survivors, based on the SEA/Cooley LLP Insurance Guidance, and
- For UK insurers and principals of appointed agent networks to review their agent appointment process, agent training and monitoring through a domestic abuse lens.
In terms of the role life insurance firms can take in helping to mitigate the use of their policies as a tool for economic abuse alongside legal and regulatory changes, Davey adds that insurance firms need to: offer constructive advice to ensure that the proposals are effective, cost-effective, and realistic.
“There are simple solutions – such as prohibiting the purchase of life insurance over another – which would be deeply harmful to the industry,” he explains. “There are others – such as simply requiring a signature – which might be ineffective.
“These will be regulations and policies to protect a subset of customers, and need to be designed and implemented in a way that provides the greatest protection for vulnerable persons without unduly limiting market innovation.”