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An expected drop off in mortgage business could push advisers into selling more protection policies, but they should be aware of the insurance industry's current bugbear - non-disclosure.

Last month, the Association of British Insurers claimed non-disclosure was the most important issue facing the protection industry - while the number of non- disclosure incidents have fallen the bad publicity it has attracted has left the industry with a perception problem.

Kevin Carr, head of protection strategy for LifeSearch, pointed out increasing mortgage repayments had increased the need for protection. But he also believes more mortgage advisers will start to use sales of protection products as a means of insuring their own income against an expected fall in mortgage approvals.

He said it is more important than ever that mortgage advisers make themselves aware of non-disclosure and the issues surrounding it. Non-disclosure, when related to protection policies such as critical illness or life insurance, means the failure to reveal a medical condition or circumstance that may affect the applicant's health. Whether intentional or accidental non-disclosure has happened, the result is the same - when someone comes to claim on a policy they could find their claim rejected. The most common incidents of non-disclosure are those relating to lifestyle. Mr Carr explained that people will quite often not admit to certain behaviour such as smoking or heavy drinking or being overweight. He said: "Then they are surprised when they get diagnosed with a serious long term health problem and the insurer will not pay up."

Tackle

Insurers for their part are trying to tackle the issue by introducing more thorough underwriting processes that leave a client in no doubt as to what they will and will not be able to claim for.

Tele-underwriting is the industry's latest weapon in the fight against non- disclosure. Research carried out by Axa found consumers were five times more likely not to disclose important medical and lifestyle information on paper applications than they were with a tele-underwritten application.

Of the 9500 applications for protection products in the last year, the insurer found non-disclosure that could potentially lead to a claim being declined with 5.78 per cent of paper applications. This compared with 3.48 per cent for electronic applications and 1.23 per cent for tele-underwritten applications.

Mike Taylor, chief underwriter for Axa, said: "Trained tele-underwriters can drill down to get specific details of medical conditions, further reducing the risk of non-disclosure."

He added that all the cases of non-disclosure were found at the underwriting stage so the insurer was able to correct the applications and underwrite accordingly to make sure the consumer was properly covered. Mr Taylor said: "Tele-underwriting also reduces the need for additional evidence because the tele-underwriters collect in-depth medical information from the consumer, enabling 75 per cent of policies to be issued within five days.

"Non-disclosure is a huge issue for the protection industry and anything we can do to reduce it can only be a benefit to both consumers and advisers, who can then have faith that protection products will pay out. We believe that tele-underwriting can increase confidence within the industry and this is reinforced by our own claims record, with no major benefits declined on tele-underwritten cover."

As a result of tele-underwriting, Axa also abolished automatic GP report limits for consumers aged less than 45 applying for life or critical illness products. Mr Taylor said this was because the majority of non-disclosure was for older lives, as applicants were likely to have a more complex medical history to report, which is where GP reports became valuable. He said: "For younger lives, especially those who do not have any medical problems, a screening provides an underwriter with a better view of their health including build, habits and blood pressure. It is also a second opportunity for the consumer to reveal any medical information, further reducing non-disclosure."

Experimenting

About half a dozen insurers are currently experimenting with tele-underwriting. In some cases the call is put through to a call centre assistant who then takes down answers, which are then checked by an underwriter and in some cases the client is put through direct to an underwriter.

Friends Provident has also introduced a tele-interviewing service. Qualified nurses undertake the interviews at a time and a place to suit clients. If requested by Friends Provident the nurses will contact the applicant and ask them a number of questions focusing mainly on their medical history and will be able to ask more detailed questions on specific disclosures.

Mark Jones, protection products and actuarial manager for Friends Provident, said there was less chance that a claim would be disputed using this approach. But underwriting policies by telephone interview is still only half the solution. Advisers can do much to protect themselves if, as Mr Carr predicts, they will have to resort to selling more protection policies. Advisers can make sure they use tele-underwriting wherever possible.

Mr Carr also pointed out that inconsistencies with insurers as to whether a client's handwritten signature was needed may end up causing a nightmare for advisers whose clients dispute their policy. He believed that if tele-underwriting was not used, the adviser should where possible get a signature. This proved the client had been taken through a full sales process.

Emma Walker, head of protection for comparison website Moneysupermarket, said advisers needed to be as clear as possible about policy details at the point of sale. But she also said it was up to advisers to point out that cheap cover did not always give the best value for money.