Advancements in medical screening and changes in lifestyle mean that an increasing number of us are living with diagnosed medical conditions.
For example, more than one in four adults suffer from high blood pressure (hypertension) and 3.7m live with diabetes – a number that has nearly doubled in the last 20 years.
And if we do not already live with a condition, it is increasingly likely that we will do as we get older – one in two of us will be diagnosed with some form of cancer during our lives and one in four will suffer from a mental health issue each year.
This all provides a challenging backdrop for the protection industry which is in many cases neither well trusted nor understood by consumers.
Research has shown that consumers estimate that life insurance claims are only paid in four in every 10 cases, while there is a widespread belief that anyone with a medical condition will not get insured in the first place.
Furthermore, it is likely that those who have previously applied for simplified insurance products and have been declined now believe they are uninsurable.
In addition to those who do not even try to take out protection insurance due to perceived ineligibility, it is estimated that every year around 500,000 do apply and, for a variety of reasons, do not complete the journey to secure the valuable financial protection they need.
So what is the reality when it comes to pre-existing conditions and your client’s ability to take out life, critical illness and income protection cover? And what does this all mean for financial advisers?
How insurers accommodate existing conditions
No two people are the same – we are each a unique a mix of lifestyle, medical conditions, family history, occupation, pastimes and other factors.
Meanwhile, each insurer will have its own unique commercial considerations, its own operating model and its own underwriting philosophy – which means that different insurers may view your client in different ways.
For core protection products, including those that cover many chronic conditions, underwriters have the unenviable task of assessing each risk and making a decision, ideally offering cover at what they consider to be a fair and equitable premium.
They have a number of levers at their disposal – standard terms, ratings, exclusions, postpones and declines. Underwriting outcomes can vary by insurer as the protection offering, experience and philosophy of each insurer can be so different, but here is a rough guide to definitions:
Accept on standard terms (or ‘accepted at ordinary rates’ – AOR): Depending on the severity or history of the condition disclosed, the type of product being applied for, and their own underwriting philosophy, an insurer may feel the nature of the disclosure is within their risk appetite and offer standard terms.
A common disclosure falling into this category is asthma. For such disclosures, insurers can offer terms instantly, without the need for any additional medical evidence.