ProtectionMay 21 2019

What do medical conditions mean in insurance applications?

  • Describe the importance of insurance policies
  • Describe the situation with exclusions
  • Note the percentage of rejected claims
  • Describe the importance of insurance policies
  • Describe the situation with exclusions
  • Note the percentage of rejected claims
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CPD
Approx.30min
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CPD
Approx.30min
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CPD
Approx.30min
What do medical conditions mean in insurance applications?

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.  

The vast majority of protection applications are accepted on standard terms – around 70 per cent to 80 per cent of all life cases, 60 per cent to 70 per cent for critical Illness and around 50 per cent to 70 per cent for income protection.

Rate (or Load): Some disclosures might trigger or result in a rated decision, where the applicant pays a percentage or fixed ‘addition’. Providers tend to adopt the ratings route where there is a higher risk, for example for life and critical illness applications and can load up to a maximum of 400 per cent.

Exclude: There is an argument that some cover is better than none, and exclusions can be a route for people to secure some valuable protection. Exclusions (where a claim will not be paid if it arises from the excluded condition) are more commonly applied for income protection (for example, for clients with mental health and musculoskeletal history).

Recently, we have seen the development of conditional exclusions where, if there is no recurrence of the disclosed condition, the exclusion can be removed or reviewed after a set period. Sometimes, exclusions can also result in a reduced premium – cancer is an example of this with critical illness cover.  

Postpone: A rarely adopted route, but usually applied where the applicant is undergoing investigations or treatment for a newly diagnosed or uncontrolled condition and the insurer opts to defer and review at a later date when the condition has stabilised.

Decline: Only a small minority of protection applications are declined – far less than consumers (and may be some advisers) might think. Industry figures indicate around 5 per cent to 10 per cent of underwritten cases are declined altogether, so at least nine in ten applicants will get some form of positive decision when applying for protection.

Greater transparency and support available for advisers and their clients

Are individual protection policies fairly underwritten? It is fair to say that there is limited understanding among advisers (and consumers) about how underwriters make decisions.

Furthermore, different insurers may offer different outcomes for an applicant with the same information, and the quality of the communications around those outcomes varies. What steps are being – or could be – taken?

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