ProtectionJan 2 2018

Making sense of life insurance applications

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Making sense of life insurance applications

Of all the protection products, life insurance is by far the simplest. But as it is often sold as part of a broader financial planning exercise, its lengthy, health-focused underwriting process can put off both advisers and clients.

As a bare minimum, clients are expected to answer around 30 questions, running through details such as their age, height, weight and medical history. While this is fairly straightforward for clean lives, throw in a previous health problem or a family history of something serious and the insurer will want to probe much deeper, with advisers required to ask for personal information about their client’s medical details. This can be time-consuming but, for advisers more accustomed to number crunching, gathering sensitive information can be awkward too. 

Collecting and analysing this data also takes time, both for the adviser and the insurer, leaving clients sometimes waiting weeks for a final decision. In a small proportion of these cases further medical evidence will be required, which could mean waiting for a GP report, or for the client to speak to the insurer or attend a medical. As well as adding to the adviser’s workload, all of these time delays mean that clients can easily lose interest in taking out cover. 

Application pressures

Clients can become disillusioned for other reasons during the application process. The quest to appear at the top of the comparison tables means insurers will often provide an initial quotation that is almost impossible to achieve unless a client has a completely unblemished medical record. Subsequently, when they are offered a premium that is double or treble the initial quotation, they can feel like they are not being treated fairly. 

While this can be frustrating for an adviser, Emma Thomson, life office relationship director at LifeSearch, says it is also slightly ironic. “Price is rarely the issue with protection. Studies repeatedly show that consumers overestimate the cost of life insurance, with many thinking it costs two, three and even four-plus times what it actually costs,” Ms Thomson explains. 

For example, research conducted by SunLife in 2015 found that, on average, people believe £100,000 of cover costs £50.98 a month, almost five times the average premium of £10.31. It also found that affordability was the main reason people had not taken out any life cover. 

Regulatory requirements

Grappling with all these factors is made more challenging by the increased regulatory requirements associated with many areas of advice. This is particularly the case for advisers arranging mortgages, the introduction of the mortgage market review regulations in 2014 having made the advice process much more time-consuming. 

Michael Aldridge, innovation director at London & Country Mortgages, explains: “The big challenge for mortgage advisers looking to sell life insurance is that they need to have two lengthy conversations with their clients. When someone has come to discuss a mortgage, having to find a further 10-15 minutes to introduce protection can put an adviser off.” 

To address these issues, and ensure protection remains part of the advice process, insurers are developing simplified versions of life insurance. These include Aegon’s Simply Life, which was launched in 2013 and enables clients aged 18-49 to apply online for up to £500,000 of life and terminal illness insurance, with the application process stripped down to nine core questions.

Aviva has also offered a similar product – Simplified Life Cover, launched in 2006 – to provide a faster and easier way to purchase level and decreasing term assurance.  

Cover simplification

While the concept has been around for some time, AIG Life has recently reignited discussions with the launch of its Instant Life product. This is a level-term assurance product, which enables advisers to apply for cover and receive a decision in less than eight minutes without the need for medical evidence, thanks to its shortened set of questions. 

The application process is online and can be completed by advisers or clients on a desktop or any mobile device. Once completed, the adviser will be notified of the outcome to enable them to arrange cover.

AIG has modified the product in a number of ways in order to offer this streamlined application process without exposing itself to additional risk and having to bump up the cost of cover. It is only available to clients up to age 55, and the maximum sum insured is £600,000 for applicants aged 17-45 and £350,000 for those aged 46-55. 

In addition, it has also stripped out the waiver of premium and guaranteed insurability options. Respectively, these options pay for cover to remain in force if a client is unable to work due to long-term sickness or disability, or enable them to increase cover without further underwriting in the event of everything from marriage and birth to promotions and larger mortgages. 

Nick Erskine, head of intermediary sales at AIG Life, says: “These additional options do add to the cost of life insurance, whether someone uses them or not. We also found that few people actually use the guaranteed insurability options anyway, so as long as advisers make it clear these options are not included, the removal is not a major issue.” 

Data-driven decisions

Royal London is developing solutions for advisers looking for more time-efficient life insurance application processes. 

Rather than simplify the product, its streamlined mortgage protection – which is available through London & Country – uses advanced machine learning algorithms to simplify the underwriting process. Royal London then uses data collected in the mortgage-advice process with the answers to just six additional questions – three medical and three lifestyle – to provide a quote. 

All customers receive an immediate decision, with around 80 per cent accepted. Those who are not accepted at this point can be referred for full medical underwriting so the risk can be assessed more thoroughly. 

Jennifer Gilchrist, senior product development manager at Royal London, says that as well as addressing the time constraints many mortgage advisers are under, the product could also help to grow the protection market.

“Some clients and advisers are put off looking at protection as the application process can be so lengthy. With this, they receive a quotation automatically, which may encourage more people to take out cover,” Ms Gilchrist says .

Although it is currently only available through London & Country, Royal London is looking to roll the product out to more advisers in 2018. In addition, it is also developing a streamlined application process for critical illness insurance, which is expected to launch in the first few months of 2018.

No surprises  

Slicker underwriting processes are also helping to create a smoother protection sale. As an example, UnderwriteMe enables advisers to complete one application form, which is then provided to all of the insurers on its platform. 

Any medical issues can be addressed at this point so that clients receive a fully underwritten, and accurate, premium at outset. Mr Aldridge says this is a positive step forward. “Clients hate it when they end up with a premium that is totally different to what they started with, even though they might have been perfectly happy paying it if it was offered at the beginning,” he explains. 

But whether it’s a lack of trust caused by increases in the cost of cover during the application process, or the fact that the underwriting is too drawn out and tedious, overcoming these issues is a must for the protection industry. By designing simpler underwriting processes, supported by data and analytics, insurers can help advisers recommend the protection their clients need.

 

BIG NUMBERS

7.1%

Growth in sales of term life insurance in 2016 (Term & Health Watch 2017, Swiss Re)

36,814

Number of life insurance claims paid in 2016 (Association of British Insurers)

£75,061 

Average amount paid out on a life policy in 2016 (Association of British Insurers)

£50.98 

Average cost of £100,000 of life insurance, according to public perceptions (SunLife)

£10.31 

Actual average cost of £100,000 of life insurance (SunLife)