Yes, many times I've heard that phrase. The best thing to say is something along the lines of, "Well, I specialize in making GOOD pictures of people. You've probably just never been photographed by anybody who really knows what he's doing behind the camera." You need to create instant confidence in your subject, in YOUR ability to photograph them.
This statement, the "I hate having my picture taken," is a pretty important tip-off to the subjects own lack of confidence in his or her own appearance, and is something you need to overcome. It is what is known as an obvious "tell". If a person leads with that, you know that they need reassurance, both in YOUR ability to shoot, and in the way they are looking. I've photographed literally, thousands of people. When a person comes into the studio and tells you, "I hate having my picture taken," many times they have some type of real or imagined 'issue', such as bad teeth, or a lazy eye, or they are habitual "blinkers", or are overweight, or have thinning hair, or what have you. You need to be READY for this type of objection; it's a type of sales interaction...you need to remove the "objection" they have by demonstrating confidence, and projecting skill and knowledge in how to make them look good, or at least look the best that they can be made to look!
A lot of older ladies used to ask for, "The special filter,", usually some type of diffusion/soft focus filter, indicating that they were worried about wrinkles. So--talk about using "beauty lighting techniques", and use very SOFT, mostly on-axis light, which minimizes wrinkles.
People with bad teeth...work "serious" and "contemplative" poses...don't ask for big smiles.
I think my favourite experience was being told off by the cops for taking pictures of a crime scene. A school had received a threat and students were evacuated, being a photojournalist I went to the school and started taking photos of the cops, the administrators still outside of the school, etc. Eventually got chased off by them saying "you can't take pictures". I realize it's maybe a tad different than someone saying "I don't like my picture taken" but still interesting LOL.
But I also have had that said to me, can be frustrating sometime, but you just have to change their mind by proving you can make them look good.
Not spesifically yet, however I have had people say "that's good and I don't normally like pictures of myself" after showing it to them. I think the best one recently was I was asked for a copy of a photo of a friend and his gf, as they (read she) was wanting one to frame, apparently she does not like photos of herself either so it was a nice wee ego boost for me. Not that there weren't faults with my pic but it shows I'm on the right road and making a bit of progress.