Why Alan Is Right - Three Ideas That Will Improve The Protection Market by Andrew Wilkinson, Director, Moneysworth
At last week’s Protection Review 2020 Alan Knowles presented three ideas designed to improve protection insurance products for those living with long term health conditions.
Introduce a temporary cancer exclusion as an alternative to a temporary per mille rating on cases involving a disclosure of previous diagnosis of cancer.
Introduce critical illness insurance with the option to exclude particular conditions where people have already been diagnosed with a condition.
Start underwriting IP applications focusing on the whole applicant instead of just their health condition and pay particular attention to the applicant’s work attendance record.
Why Do We Need These Changes?
Although the significant majority of the population have been able to access all types of three protection insurance, pandemic aside, a sizable and ever growing minority have found themselves struggling to access protection insurance due to a previous diagnosis and/or an ongoing health condition.
The life insurance market works fairly well for those with pre existing health conditions, especially if they use the services of a specialist whole of market adviser but with one or two important exceptions.
One such exception concerned those with mental health disclosures at the heavier end who often found themselves declined, long term postponed or offered generally unaffordable high per mille loadings. Together with Royal London, Alan myself and one or two other fellow collaborators, designed a new underwriting approach which aimed to provide meaningful life insurance to those who found themselves previously shut out. It wasn’t just the client who benefitted either, because the solution that we developed also helped manage the insurer’s risk. Everyone benefitted.
So Alan’s first idea extends a similar underwriting approach to those diagnosed with cancer. After treatment the risk of cancer returning is greatest in the early years after diagnosis and treatment hence the traditional per mille approach. Alan’s idea protects the insurer while at the same time making available life insurance at an affordable premium with the prospect at the end of the exclusion period of having the cancer exclusion removed.
However, both critical illness insurance and income protection insurance are much more difficult to access with some key long standing health conditions. Alan used the example of his wife Kathryn to illustrate the problem with access to income protection insurance. Who would have thought that one of our industry’s most important thought leaders and communicators would be unable to access IP cover for herself?
It's especially frustrating that Kathryn’s excellent work attendance record counts for nothing in the IP underwriting assessment and this is where Alan’s basic point comes in about taking account of work attendance and underwriting applications on the basis of the whole individual and not just the fact they have a certain health condition. There are many people who like Kathryn continue to work and thrive in their careers despite their underlying health condition.
The Potential Benefits
So there are four key reasons why insurers should act along the lines suggested by Alan
It will create a bigger protection insurance industry with greater volumes of business written, for everyone. People with health conditions represent an important part of the protection gap.
It’s the right thing to do ethically and until its done the protection industry will always have a related public trust issue. Its clear that our regulator wants firms to pay attention to the needs of the vulnerable and that we should be aiming to be as inclusive as possible. In simple terms we should be aiming for a utilitarian approach, one which aims at the greatest happiness for the greatest number. That means filling in the product gaps where access is currently denied.
In fact, we can go further and acknowledge that the law already supports what Alan is suggesting. Current underwriting philosophies which decline 100% of applicants with specific health conditions do not meet the requirements of The Equality Act 2010.In fact the act speaks about the need for providers to explore other options such as the use of exclusions and/or ratings for those where standard terms are not possible. As an industry we need to get onside with these requirements as soon as possible. (reference Shayne’s document below – suggested further reading).
In taking up Alan’s ideas providers would also be helping the advisers, many of whom regularly come across situations where it is not possible to get the client what they want. In other words it fills an important gap in products and the effect will be that protection advisers in general should have something in their briefcase for the vast majority of clients, not just those who are lucky enough not yet to have a long term health condition. This places advisers in a stronger and better-supported position.
Finally lets not forget the scale and the social drivers involved. Generally, the population is working longer, having their families later and also carrying mortgage debt later. Meanwhile as we age we pick up health conditions. With one in two diagnosed with cancer, over seven million with heart conditions and around five million with diabetes to name just three key conditions those affected represent a substantial part of the population.
Merry Christmas everyone. 2020 was difficult but if product providers embrace Alan’s ideas we can look forward to a brighter future and a bigger market, for insurers, for advisers and most importantly for people living with long term health conditions.
Suggested Further Reading
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