Mental health conditions such as stress, anxiety and depression are common, with figures from Mind showing that around one in four people in the UK experience a problem every year. But taking out protection can prove difficult and expensive for some people who have experienced mental health issues in the past,
The issue was highlighted in Radio 4’s Money Box in December 2018. The listener, a 37-year-old woman, wanted to take out life insurance and critical illness to protect her young family and searched for cover online.
Pleased with the prices she was offered by an aggregator, she went through to the life insurer’s website to complete the application, only to find that her premium was loaded by 30 per cent as she had suffered postnatal depression in the past. This price hike, which meant she would pay an additional £3,000 over the course of the policy, meant she was forced to reduce the level of cover.
Understanding risk
Her experience highlights a number of issues faced by individuals who have had mental health conditions and want to take out protection. “This woman should have got standard rates,” says Alan Knowles, managing director of Cura Financial Services.
“Unfortunately, the cheapest rates on aggregator sites are often from companies with the strictest underwriting criteria. This also creates a lack of transparency: once the premium is loaded, the individual thinks they must be a higher risk and accepts they will have to pay more.”
Although some insurers will see a mental health disclosure as a trigger for loading the premium, many are prepared to take a more considered approach.
Johnny Timpson, financial protection specialist at Scottish Widows, says: “In this case, the application was probably never seen by a human. If she had come to us, an underwriter would have wanted to know more about her situation and the treatment she received. With this information we would have been able to give her standard rates.”
The high probability of receiving standard rates can be seen in disclosure figures from Scottish Widows Protect. These show that in 2017, 52,000 of the 76,000 applications included some form of disclosure, equivalent to around 68 per cent of cases.
However, in only one in 10 of these disclosures did the health issue have a bearing on price. Of these, the most common disclosure was for mental health issues, which accounted for 12 per cent of cases, with back problems in second place at 6.6 per cent.
When the disclosure was for a mental health condition, 78 per cent were offered standard rates, with 95 per cent offered cover.
“The key message is that most people will get some form of acceptance, with the majority offered standard rates,” adds Mr Timpson. “We must ensure that individuals with any health issues, mental or physical, do not feel they cannot get cover.”
Underwriting clarity
Incorporating more of a human touch into the underwriting process ensures that individuals are offered the right price for their cover, but as this can be resource heavy there is also room for improvements to the question set used in applications.
Phil Jeynes, head of sales and marketing at UnderwriteMe, says insurers still ask a very simplistic question about an individual’s mental health.
He explains: “Insurers ask applicants whether they have ever had a mental health issue, stress, depression or anxiety. Ten years ago this would have been interpreted as something that required a trip to their GP, but now we recognise that most of us have a mental health issue from time to time. We need to change this question: it is too blunt.”
Instead, Mr Jeynes would like to see insurers offering more explanation around this question. This could include information about the types of mental health conditions that might affect the risk, as well as additional questions for individuals who answer ‘yes’, such as the nature of the incident and the medication that was prescribed.
Taking this approach will give a better understanding of the risk, but it will also help to prevent non-disclosure. “Where an insurer takes a blunt approach, there is a danger that an individual will keep quiet about something that might be important such as seeing their GP for stress,” says Mr Jeynes.
“We need to be much more open with our customers about the information we need and how we will use it.”
Mr Knowles agrees. He would like to see greater use of more empathetic questioning on online applications. “There is such a drive to get straight through business but if insurers included information explaining how an applicant’s responses had affected the price it would make the process much more transparent,” he says.
Price transparency
The Money Box example also throws up another issue that affects individuals with any kind of health condition. By starting the process with a premium for a clean life, consumers can feel cheated if the final price is loaded as a result of any disclosures.
This approach can be particularly misleading if it is used to determine the cheapest provider; for instance, on a price comparison site. Once underwriting is factored in, the so-called best price can often fall down the table as a result of the loadings that are applied.
Paul Roberts, head of protection at Old Mutual Wealth, says: “It is wrong to provide an illustration that an individual will not get. Advisers should get a decision in principle on anything that might affect the premium.”
As people do not disclose everything automatically, he also recommends that advisers conduct a thorough fact find to ensure they understand all the relevant factors. As well as illnesses and health conditions, these could include less obvious things such as the individual’s career or even a hobby.
“The industry needs to put the customer’s interests first,” Mr Roberts adds. “The FCA is looking at how to ensure vulnerable customers have access to insurance. These could include individuals with a history of mental [health] issues, but equally a famous footballer or someone with a family history of heart conditions.”
As well as understanding the risk before talking price, insurers are increasingly moving to systems such as UnderwriteMe that will underwrite the applicant before providing a price. This ensures more accurate price comparisons can be made. “Comparing clean prices makes no sense,” says Mr Jeynes. “It is a bit like arranging car insurance without knowing what the vehicle is.”
Moral stance
Ethically, it is also important that the protection industry demonstrates it can offer affordable cover to individuals who have a history of mental health conditions. “One in three people will have a mental health disclosure of some type,” says Mr Knowles.
“If they are concerned that they will be judged, this will stop them disclosing this information or prevent them taking out cover at all.”
As well as making underwriting more transparent for clients with mental health issues, the protection market could also benefit from greater flexibility in its product terms. For example, Mr Roberts says that in many cases an insurer will automatically withdraw features such as guaranteed insurability options from the cover if it is written on a non-standard basis. This prevents the policyholder from increasing cover without further underwriting following life events such as having a child, getting married or increasing the mortgage.
“We have to get away from price and focus on the person as the most important part of the cover,” he adds. “The protection industry has to treat customers with more understanding.”
With the UK benefitting from a more open dialogue around mental health, it is essential that the protection industry adopts the same approach. Ensuring that clients are able to access cover at a fair price, and not penalised for a mental health condition, is essential.
