ProtectionOct 28 2013

Protection for people with diabetes

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Diabetes is an increasingly common condition in the UK, with almost one in 20 people diagnosed with it. With the numbers expected to rise further still, insurers are looking at ways to help those who develop the condition.

There are two main forms of diabetes, type 1 and type 2. Type 1 is more rare, affecting between 5 and 15 per cent of all sufferers, and it develops when the body is unable to produce insulin or when the insulin-producing cells are destroyed. It usually occurs before age 40, but especially in childhood, and is treated with daily insulin injections.

The more common form of the condition, type 2, occurs when the pancreas doesn’t produce enough insulin to maintain a normal blood glucose level or the body becomes insulin resistant. It normally occurs after age 40 but, with its link to obesity, more and more younger people are developing the condition.

Cover for diabetes

Although the number of people with diabetes is rising, insurers have tended to shy away from offering cover on critical illness insurance products. But this is beginning to change.

While cover for type 2 diabetes is not available, it is possible to take out critical illness insurance that includes type 1 diabetes. The choice is fairly limited, with just three insurers – Friends Life, which has offered it for several years, and more recent market entrants, Ageas Protect and PruProtect – offering it.

“It is a condition that worries consumers so we worked with our reinsurers to develop cover that would be of value. Our reinsurers charge us for the additional risk associated with this cover, which indicates that there is a likelihood of claims” says Steve Casey, head of marketing and propositions at Ageas Protect.

Each insurer takes a slightly different approach. For instance, while Friends Life offers a full payout on its plan, Ageas and PruProtect offer a partial payment, limiting it to 25 per cent and 15 per cent of the sum assured respectively with Ageas capping the maximum payout at £25,000 (see Table 1).

While it offers a more generous payout, to limit its exposure Friends Life restricts cover by age, only paying out where diagnosis occurs after age 40.

Cover limits

With these different conditions, the generosity of cover will depend on the sum assured and the age of the policyholder. For example, analysis by CIExpert, shown in Table 2, shows that a 30-year-old with £50,000 of cover would receive £12,500 of benefit if they claimed with Ageas Protect; £7,500 with PruProtect and, because of their age, nothing from Friends Life. If he or she had £500,000 of cover, Ageas would pay £25,000 and PruProtect £75,000.

If the claim was made at age 40, the outcome would change completely. Although the payments from Ageas and PruProtect would not change, the policyholder would receive the full sum assured from Friends Life.

While selecting the most suitable policy is certain to come down to more than an appraisal of the potential size of a claim for diabetes, with both Ageas and PruProtect adding this cover in September 2013, it is expected that other insurers will follow suit. Ben Heffer, insight analyst for life and protection at Defaqto, says it would be a good addition to a critical illness product, especially as a partial payment. “Adding it as a partial payment limits the risk to the insurer while providing a useful benefit to the policyholder,” he explains.

Underwriting diabetes risk

Although the fashion for partial payments is enabling insurers to soften their stance when it comes to including cover for diabetes, a client requiring protection who already has this condition can face a much tougher line. Emma Thomson, life office relationship director at LifeSearch, explains: “Underwriting stances vary between insurers and will greatly depend on whether the client has type 1 or type 2 diabetes. Type 1 is usually regarded as the higher risk but, where a client has either form of diabetes, the cost of cover, if available, is likely to be higher than for a standard life.”

As well as the type of diabetes, underwriters will also look at other health factors that may affect risk. These can include some of the associated complications, such as circulatory, nerve and kidney problems, as well as more general health issues that will affect risk such as smoking or obesity.

For example, when arranging life assurance for a client with diabetes, specialist adviser Pulse Insurance asks for further information to assist the underwriting decision. This includes a history of the individual’s condition, including prescribed medication, their most recent appointment at a diabetes clinic, and whether intravenous glucose or a hospital admission have been required; details of any complications related to diabetes; and their weight and smoking history.

While the existence of serious health issues such as a stroke or smoking will make it more difficult to arrange cover, Paul Sandilands, managing director of Pulse Insurance, says the single most important factor for an underwriter is how the individual manages their diabetes.

“Diabetes responds well to modern medicine and the underwriter will want to see that someone is doing everything they can to control their condition. If someone’s medical records show they have looked after themselves and the condition is relatively simple, it is much easier to arrange cover,” he says.

Protection for diabetics

Of the three main protection products, life assurance is the one most readily available. However, because diabetes can affect life expectancy, premiums are loaded.

Thomson says that while someone with type 2 diabetes will see a relatively small loading to account for the additional risk, those with type 1 can expect average increases of around 150 per cent on the standard premium with some clients paying significantly more.

Although most insurers will consider writing life assurance for a client with diabetes, there is much less choice when it comes to arranging income protection or critical illness cover. This is because, although diabetes can be managed through medication, it increases the risk of other conditions such as heart disease, stroke and some forms of cancer.

For type 2 diabetes, a handful of insurers including Aegon, Friends Life and Zurich will offer critical illness cover while just one, Aviva, will offer income protection to lower risk diabetics, with premiums loaded to reflect the additional risk.

The choice is even more limited for type 1 diabetes. All insurers will decline for income protection and, according to Ms Thomson, only one, Friends Life, offers a critical illness insurance product. “Cover is on a reduced basis with around 20 conditions excluded and it is only available to very well controlled, low risk diabetics,” she explains.

She continues,“Accident and sickness policies may be an option to give clients some disability cover but diabetes-related claims would not be covered due to the pre-existing condition exclusions on these types of plan.”

While the health risks associated with diabetes mean that arranging cover for a diabetic client can be challenging, it is encouraging to see that insurers are taking steps to help clients protect themselves from the risk of developing type 1 diabetes.

As more insurers add cover for type 1 diabetes to their critical illness products, the market is set to gain from the additional insight into the risks associated with the condition.