11th January 2024

PDG Underwriting Challenges

In this article, Alan Knowles, Board member of the Protection Distributors Group identifies 3 underwriting areas where we believe significant improvements can be made. 

The pandemic sparked plenty of concern for both insurers and advisers, especially when it came to underwriting. It might be better now that loading caps have been mostly removed and medicals are able to proceed again, but we are still feeling the impact; NHS waiting lists for surgeries/investigations are taking longer than ever before, so some people seeking protection insurance are now being postponed for years due to outstanding tests/treatment, whereas previously it would have been months.

We are not underwriters, and we don’t envy an underwriter’s role in the current climate. But as advisers we do see the issues and barriers that customers face. Whilst we know that tests/treatment turnarounds are posing a real challenge at the present time, we are aware this is not a quick fix. So this year the PDG have chosen to raise three important underwriting barriers that we believe can be addressed by achievable improvements.

Mental Health Questions

Whilst the wording of mental health questions on insurance applications have undoubtedly improved (thank you ABI mental health standards), most insurers are still asking customers if they have EVER considered taking their own life, self-harmed or attempted to take their own life. In fact, most start by asking if someone has ever been in hospital due to mental health or seen a psychiatrist.

If you think about the ramifications of such a question, it means that customers in their 50s would need to declare that they tried to end their life (or even just had thoughts of this) when they were 18 years old. We are forcing customers to dredge up something that could have happened 32 years ago. And if the client had more than two separate attempts, some insurers would decline this immediately online without a human even looking at it. 

Not only is this unfair, but it’s also quite cruel to make somebody relive this. And is it genuinely relevant to ask someone about this when decades have passed, but on the other hand only ask about things like drug use in the last 10 years?

What’s reassuring is that some insurers are already moving away from this approach.  One insurer for example generally just asks for such events in the last five years, and another two just ask in the last 10 years. 

The PDG’s ask to all insurers is how necessary is it to find out about someone declaring an event (or events) from such a long time ago? The reputational damage of asking such questions when it’s not relevant is vast, but also, how many people walk away without cover as they are just disheartened by these overly intrusive questions? 

We would like to see all insurers adopt a ‘10 year forget rule’ on suicide attempts, thoughts and self-harm, so instances over 10 years ago would not need to be disclosed.

We are also pleased that some insurers are now providing much needed clarity on the suicidal thoughts question. By moving away from asking about ‘thoughts’ and instead asking about ‘plans’ or if the customer has sought medical advice due to suicidal/intrusive thoughts provide much greater clarity. 

Just asking someone if they have ever had ‘thoughts of ending their lives’ is far too open and leaves much room for interpretation. We therefore ask all insurers who haven’t changed this question yet, to consider doing so to stop over/under disclosure and result in better customer outcomes.

The next areas of improvement focus on income protection and TPD.

3 Strikes and You’re Out!

If you’ve ever watched American baseball you will have heard the phrase ‘3 strikes and you’re out of there!’  Referring to the batter missing three bowls, which signals the end of their turn.

Many insurers in the UK operate a similar model for exclusions on income protection cover. This means that if you reach a total of three exclusions (or combined risks, e.g. premium loadings) then you are simply refused cover.

Yes, Treating Customers Fairly is often quoted here and no doubt ‘Fair Value’ or ‘Consumer Duty’ soon will be too. The argument given is often, ‘is it fair to offer an insurance policy with four exclusions…?’ - Does this leave enough for the customer to claim on and is it worth the money they would have to pay.

But if you flip this on its head, then is it fair to not offer somebody cover at all when there are still lots of things they could claim on? If you decline the customer completely then you’re actually excluding claims for everything. Let’s look at an example:

A 30 year old woman who had a baby last year. She had postnatal depression, hip pain and has a slightly high BMI due to carrying some baby weight. She then declares that her mother had Multiple Sclerosis aged 30. This means she could have the following terms applied:

?               50% loading for BMI

?               Hip exclusion

?               Mental health exclusion

?               MS exclusion

As this would be four notable risks (exclusions and loadings), it means that around 80% of insurers would decline her for income protection. Some would even decline based on any more than two risk factors.

One in two people will get cancer in their life, and one in six people in the UK have at least one neurological condition, along with many other things that could happen to someone; there is a lot more than the aforementioned exclusions that the client could have that could stop them working, and a complete blanket refusal gives the person not opportunity to protect themselves against these other risks.

As an industry we bang the drum for better take up of income protection, yet barriers such as this stops people from getting cover. As medical science improves, so do early diagnostics. And as we see more people proactively talking about their mental health we will only see an increase in people getting more exclusions.

We are not recommending a specific maximum here, but surely we can do better than three?  Customers could still have cancer, heart trouble, broken bones and many other conditions but they’ll be unable to claim for these anything if declined cover outright. 

We believe it should be up to the customer to determine what is fair value. If they’re prepared to pay for cover with multiple exclusions to provide them peace of mind in case anything else prevents them from working, then they should be allowed to do so. 

Moving TPD to Own Occupation

It wasn’t long ago that most insurers made the bold move to remove ‘suited occupation’ and ‘any occupation’ definitions on income protection. Yet many still offer these inferior definitions on Total and Permanent Disability (TPD). TPD is a difficult benefit to claim on, only made harder by not having an own occupation definition, so can easily lead to customers being let down when a claim doesn’t pay. It doesn’t feel right that a customer can get an own occupation definition on IP but not on TPD. 

Whilst we also believe the benefit should be completely overhauled due to its wider challenges, a good measure for the time being would be to move to all new policies with TPD to Own Occupation, aligning with the IP approach. Those who currently can’t get TPD likely still won’t be able to, but the least we could do is make it easier to claim on and simpler for customers to understand.

Alan Knowles is the Managing Director of Cura Financial Services, and a Board member of the Protection Distributors Group.

Cura Financial Services specialise in finding protection insurance for people who are seen to be high risk, quirky or non-standard. They “insure the uninsurable” and fight for fairer terms and access to insurance for everybody.  

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