ProtectionOct 24 2017

Ways to cover those in ill health

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Ways to cover those in ill health

Postponing life events such as buying a first home or starting a family means that people are often older when they take out protection. But with the likelihood of conditions such as type 2 diabetes, high blood pressure and obesity increasing with age, it can be a struggle to arrange life insurance. 

Although the mainstream insurers will consider some health conditions, for instance a body mass index (BMI) up to 45 or type 2 diabetes, they are still fairly selective on the risk they will accept.

Alan Knowles, managing director of Cura Insurance, says: “Insurers are improving the way they cover some conditions, but if a client has type 2 diabetes and a high BMI it gets more difficult. You really struggle if someone has had a heart attack or cancer.” 

The situation was made worse in September when Just announced it was pulling out of the protection market. Partnership, which merged with Just Retirement to create Just, had specialised in protection business for impaired lives. Its full underwriting approach enabled it to cover many people who had been declined by other insurers.

Filling the void

Although Just may be out of the picture, there are signs that other insurers are looking to provide protection solutions for this market. In April, Royal London and The Exeter both unveiled specialist life insurance products. 

Royal London’s product, Diabetes Life Cover, enables individuals with type 1 or type 2 diabetes to access cover. By using insurance technology platform Kalibre, it is able to offer a simple and fast application process, assessing the risk and underwriting in less than an hour, as opposed to the several weeks that are the norm for non-standard risks. 

The Exeter’s product, Managed Life, is initially available to people with type 2 diabetes or a high BMI, initially going up to 47 or 48 depending on the product type. While this is the first step, it is looking to extend the plan to other clients with health conditions who would struggle to get life insurance. 

Steve Bryan, director of distribution and marketing at The Exeter, explains: “Protection is a crucial part of most financial portfolios, but for people who have experienced serious health conditions it becomes an even more important consideration. Most insurers target their cover at simpler-to-underwrite risks, but by extending Managed Life, we want to change this.”

Both providers also enable policyholders to reduce their premium if they improve their health status. On Royal London’s plan, a policyholder can see their premium fall by up to 40 per cent if their annual HbA1c test result indicates they are managing their diabetes. In addition, while premiums can increase again, there is a guarantee that they will never exceed the initial starting premium. 

Premium lock-in

Similarly, with The Exeter plan policyholders can reduce their premium by up to 35 per cent by reaching annual targets. If the condition worsens, premiums can also rise by an amount agreed at outset. 

The Exeter also offers a premium ‘lock-in’ feature. This fixes the premium for the remainder of the term if the policyholder reaches the minimum or maximum premium set at outset. This can usually be achieved in five years where steady improvements, or deteriorations, are recorded.

As an example, a 45-year-old man with a height of 170cm and a weight of 113kg, giving a BMI of 39.1, applies for £250,000 of level life insurance over a 20-year term. His monthly premium at outset is £52.80. 

He is given the option to reduce his premium by four per cent each year if he is able to reduce his weight to below 107.3kg. Alternatively, if his weight increases to 122kg, or he does not provide an annual weight result, his premium will go up by 5.25 per cent. In addition, his monthly premium will be locked in for the remainder of the policy term if it drops to £43.05 or increases to £68.19.  

Warm reception

Both products have been well received by advisers. Rob Harvey, independent protection expert at specialist advisers Drewberry, says he is seeing more clients with type 2 diabetes and/or a high BMI. 

“These individuals are having to pay a significant loading on their premium to get cover and in some cases this is a higher loading than for those who smoke or drink excessively,” he says. 

“There is a higher morbidity risk for those with diabetes but, when the condition is well-managed, you have to wonder whether it is truly higher than for those who drink or smoke a lot.”  

He also applauds these products for encouraging people to lead healthier lives. “If someone ends up leading a healthier life and saving money as a result, they win on both counts,” he adds.

Nudging policyholders to make improvements to their health is nothing new though, with this approach pioneered by Vitality across its medical insurance and protection range. For example, by using its Wellness Optimiser, policyholders with type 2 diabetes can see their life insurance premiums reduce by up to 40 per cent if they can demonstrate they are controlling their condition at an annual health check. 

The approach that many insurers take towards policyholders who give up smoking is another variation on this. In this case, if someone has been nicotine-free for 12 months, while some insurers will insist they are underwritten again to benefit from lower premiums, others will switch them on to non-smoker rates without quibble.

Broader cover  

Although it is positive that insurers are beginning to cater for some groups that would previously have struggled to obtain cover, there are still plenty of people who do not fit the health criteria demanded by the insurers. For these individuals, Mr Knowles recommends speaking directly to insurers first. 

“Quotation systems will often decline anyone with any health or lifestyle issues, but if you can get the ear of an underwriter you are much more likely to get them to agree cover,” he says. 

“The insurers also have different tolerances to conditions, so it is often a matter of knowing which battles to fight them on.”  

Where the mainstream insurers are not comfortable offering terms to a client, the Lloyd’s market can be worth approaching. But, while it will usually be able to offer cover, this will often come with restrictions.

As well as the mainstream approach of loading the premium, Lloyd’s insurers might impose an exclusion on a policy, ruling out payment for any claims relating to a medical condition. However, the real deal breaker can often be the fact that the maximum term is usually 10 years, which can cause headaches where someone is looking to cover a mortgage. 

Although these restrictions make it very much a last resort when arranging cover, Mr Knowles believes the mainstream insurers could learn from the approach. “Insurers should be looking for reasons to insure people, rather than reasons not to insure them,” he says. 

“If a client who has had cancer was offered life insurance at £200 a month or the same cover with an exclusion for cancer for £20 a month, I think they would take the cheaper option. The trouble is the insurers worry too much that this could generate bad publicity.” 

Regulatory incentive

Taking a more flexible approach to insuring individuals with health issues also sits well with the FCA’s work on vulnerable consumers and access to financial services. Its occasional paper on consumer vulnerability criticised the financial services industry for only having policies in place that were designed for a typical consumer. 

Similarly, while its latest work in this area is looking at the provision of travel insurance for consumers who have or have had cancer, it is keen to nurture a more inclusive culture in financial services. 

But whether the FCA finds itself having to encourage – or force – insurers to reach out to consumers who have struggled to access cover in the past, the fact that some are already looking at this suggests the protection industry is taking the right first steps.