ProtectionSep 10 2014

Your client’s health: a blessing or a curse?

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Published headline rates for life, income protection and critical illness cover insurance policies do not always tell the full story, as a significant minority of applicants will have poor medical histories or risky pastimes which will attract premium loadings or exclusions, or possibly even lead to declinatures.

Nevertheless, independent financial advisers need not actually specialise in protection to handle such non-standard risks. The key is to manage client expectations.

Mark Jones, head of protection at LV=, said: “It’s probably not sensible to tell clients with health problems what the standard terms are, and there is a lot to be said for explaining that terms are likely to cost more for higher-risk cases but that this probably actually represents better value as they are more likely to claim than the majority of policyholders.”

Different protection insurers’ attitudes towards the same risks can vary significantly. Furthermore, these stances can change markedly over time.

Tom Conner, director of London- and Brighton-based specialist intermediary Drewberry Insurance, said: “Obesity is obviously an important consideration, but insurers taking quite lenient stances on this include LV= on all protection products and Exeter Family Friendly on income protection. Aviva is also good for obesity in the sense that it doesn’t impose loadings for it if there are no additional health risks.”

Most insurers now offer underwriting helplines that can answer preliminary questions about non-standard risks before clients fill in any forms. By using these for ‘pre-underwriting’, advisers can identify the insurer most likely to offer the most favourable terms on any particular risk. This saves time and can avoid clients having to unnecessarily declare to other insurers that they have been accepted on non-standard terms.

Some insurers still ask applicants to declare such information and, although they will always offer terms based on their own underwriting, this can prove a sensitive issue with clients and can involve a great deal of unnecessary administrative hassle. It could also lead to non-disclosure issues in the future if clients forget to mention the necessary details.

Before actually phoning the helplines, advisers should obtain all the medical information they are likely to need to discuss the risk in question.

Emma Thomson, life office relationship director at national specialist intermediary LifeSearch, said: “If applicants have high blood pressure, ask for the latest readings, and if they have depression, establish the symptoms, the cause of it, whether they’ve been off work and what medication they are taking. For diabetes sufferers it is important to ask for blood sugar readings to indicate how well controlled the condition is, and to ask for their weight and whether they smoke.”

But selecting the most suitable policy at the outset is only the beginning of the adviser process with non-standard risks. Advisers should also carry out regular reviews to ensure that clients are not missing out on chances to obtain better terms. For example, policyholders may have given up high-risk occupations or hazardous pastimes, or medical conditions may become less risky with the passing of time or changes in underwriting attitudes.

Chris Pollard, head of underwriting, claims and operations at Friends Life, said: “A decent adviser would have a word with the underwriter at outset, and make a note on the file after establishing the first opportunity when it could be worth revisiting.”

There is also much to be said for revisiting all non-standard risks every twelve months as a matter of routine and phoning a few underwriting helplines to see if more favourable terms are available. Even such a small time lapse could enable significantly improved deals with those suffering from bad backs or high blood pressure, or who have lost weight or given up smoking. (See Box).

Indeed, for some conditions, even a time lapse of only a couple of months can prove all-important. In May this year, James Caplan, managing director of London-based specialist intermediary First Financial, arranged a single life critical illness cover policy with a sum assured of £454,000 for a 36-year-old man with Legal & General. The client, who was paying a premium of £131 a month, was excluded for malignant melanoma as a result of having a few moles, some of which his GP did not consider worth removing. However, in July Mr Caplan managed to get the exclusion removed.

He said: “I went back and challenged the decision after taking advice from my wife, who is a doctor, and contacted other life companies as well. Because the others would offer standard terms, Legal & General removed the exclusion. IFAs should be revisiting risks and accessing medical knowledge to challenge any decision they don’t agree with.”

Improved terms on heart conditions may not be available for at least five years, but it may prove to be worth the wait. For example, a 55-year-old who has a heart attack may be granted cover six months after the event with a loading of 2.5 times standard terms. But this loading could be halved five years after the heart attack.

Improved terms for cancer are also unlikely to be available for five to 10 years – although it can happen earlier in cases where temporary cover with exceptionally high loadings has been granted.

Alan Lakey, senior partner at Highclere Financial Services, a specialist intermediary based in Hemel Hempstead in Hertfordshire, managed to get a cancer exclusion removed from a life and critical illness policy 10 years after a client had undergone an operation for testicular cancer. The client subsequently had a claim for cancer in his remaining testicle, and received a £93,000 payout from Friends Life.

The client originally took out £93,000 of single life cover for a 25-year term with Aegon in 2005 when aged 37 but, because he had suffered testicular cancer five years earlier, had an exclusion imposed for cancer as a whole. He also incurred a £38.11 monthly premium loading, resulting in a total premium of £89.45 a month.

But in 2010, 10 years after the client’s first testicle had been removed, Lakey shopped around for better terms from a number of insurers before switching the client to Bupa (whose book was subsequently acquired by Friends Life), which offered standard terms.

Lakey says “He got an identical plan but with no exclusion or premium loading, although the premium reflected that he was five years older. When he got cancer in his remaining testicle he was able to pay off his mortgage and had a bit left over, and he was so grateful for what I’d done that he gave me a case of vintage wine to show his appreciation.”

There is also much to be said for revisiting the policies of those who are standard risks, even if only at three- to five-yearly intervals, to see if their circumstances have changed or their cover can be improved.

LifeSearch’s Emma Thomson says: “It may be worth switching clients even if it costs a little more. In the last 18 months, many insurers’ definitions for heart attacks and strokes have improved, as has children’s cover. Friends Life has introduced cover for children-specific illnesses like muscular dystrophy, cerebral palsy and cystic fibrosis. Friends Life and Aviva have also brought in funeral cover for children.”

(BOX) – Some conditions well worth revisiting after only 12 months

Bad Backs – If an income protection policyholder has an exclusion for a bad back, some insurers will remove this after only 12 months if they have been entirely clear from symptoms. Others may do so if there have been no symptoms for two to five years.

Weight – Protection insurers will often remove loadings incurred by policyholders for being overweight if they can prove they have maintained weight loss for six to 12 months. Underwriters will, however, want to know how quickly and why the weight loss has been achieved, as they will be looking for sustained progress via lifestyle change.

Smoking – Policyholders who have given up cigarettes completely for 12 months should be able to obtain non-smoker rates, which will typically result in a premium reduction of around 50 per cent. But they must also have steered clear of nicotine replacement products, normally including e-cigarettes.

High blood pressure – If someone has recently been diagnosed with raised blood pressure and the medication has resulted in little progress, they might get a premium loading of around 50 per cent. But after 12 months if the condition has clearly been brought under control by medication and lifestyle changes, they could be offered standard rates.

Edmund Tirbutt is a freelance journalist

Key points

Headline rates for life, income protection and critical illness cover policies do not highlight applicants with poor medical histories

Most insurers now offer underwriting helplines that can answer preliminary questions about non-standard risks before clients fill in any forms

Improved terms for cancer are unlikely to be available for five to 10 years