With protection, as with other forms of insurance, the ability to offer affordable cover results from risk pooling, which enables common financial risks to be shared evenly amongst a large number of people.
But, recognising that each policyholder is different, insurers have also tried to offer them the flexibility to “tailor” policies to suit their particular needs.
A particular breakthrough came from the development of the ‘menu-based’ approach, which dates back to the mid-1990s.
This offers the simplicity of buying different types of protection products from a single company, involving only one policy fee.
Different cover types can be chosen for different amounts and lengths of time, enabling policyholders to adapt cover to suit whatever stage of life they are in.
The huge win from an underwriting perspective is that protection menus require only one set of medical underwriting to be performed, even if the policyholder is taking out life cover, critical illness cover and income protection.
The consumer only has to answer one set of medical and lifestyle questions on a single application form, and the insurer – should they require them – only has to send off for one GP report or arrange one medical examination.
This can all shave weeks, or even months, off the underwriting process.
But during more recent years the term ‘tailored underwriting’ has tended to be used in conjunction with a trend for individuals to receive more flexible – and possibly also more generous – terms by taking out covers that focus on specific conditions.
This idea can arguably be traced back as far as 2006, when Virgin Money launched the first cancer-only plan and, although this was subsequently followed by a similar product from AIG, the approach never really took off because underwriting for cancer on standard critical illness cover policies became so advanced.
The more recent trend, however – which so far only applies to life cover – dates back to April 2017, when The Exeter launched Managed Life, a life policy aimed at both those with type 2 diabetes and those who are overweight.
After going through the underwriting process, applicants are offered a higher premium than the average healthy person would pay (typically two and a half to three times as much) but also the chance to improve the premium annually if they exercise control factors effectively.
If, for example, an obese individual loses weight or a diabetic effectively controls their blood sugar levels, they can earn premium reductions. Conversely, if weight or blood sugar levels increase then the premium could go up.
Royal London also launched a similar Diabetes Life Cover plan in April 2017, but this does not cater for obesity alone and, although offering the chance to obtain premium reductions, it will never actually increase premiums beyond initial levels.
Alan Lakey, director of CIExpert, says: “I welcome this underwriting approach because, although it wasn’t impossible, it was pretty difficult for diabetics to get cover before.