Anyone new to advising on protection might be forgiven for thinking that the underwriting of life, illness and injury is about as penetrable as black hole theory.
And while we are not going to even attempt to get into the intricate realms of risk modelling, analysis and evaluation for the purposes of this CPD column, we are going to try to help newbies get to grips with the fundamentals of protection underwriting.
What is underwriting?
Underwriting is a promise to pay out in the case of damage or financial loss, the etymology of which can be traced back to the 335-year-old Lloyds of London insurance market.
Financial bankers (as they were known) were paid a fee – an insurance premium – for literally writing their name under the risk they were willing to accept as specified in a Lloyds document.
When that risk relates to something as intangible and nuanced as health – or, indeed, life itself – there seems a certain mystique to this whole exercise, in comparison to much more tangible risks like cars and homes. And this is where advisers new to protection might, quite understandably, feel a little nervous.
It is about getting to grips with what insurers need to know in order to make - and guarantee - that promise to pay out; in particular the client’s past medical history, what they do for a living, also hobbies and any health-related habits (drinking, smoking etc).’
Cutting through that perceived mystery is not as difficult as it may first seem. It’s essential to do this to help build client confidence. Because, with confidence comes trust. And with trust comes the potential for a product that is best suited to requirements and that will pay out when needed.
With this in mind, we approached a selection of protection experts from a variety of different fields: advisers, insurers, underwriters and technology providers. We asked two questions:
If you were training a new adviser tomorrow on protection underwriting, what are the three most important areas to cover?
If you could change or improve one aspect of the protection underwriting, what would it be and why?
On question one, the top three areas - based on responses across all our expert commentators - may be summarised using the following three broad sub-headings:
Help clients feel comfortable to be open and honest
Honesty at application stage is key to a successful claim in future years. A failure to reveal an important piece of information about health, wellbeing and lifestyle at this stage – also known as non-disclosure – represents the top reason for declined claims.
Fortunately, advisers are in the unique position of being able to help clients give insurers full and truthful information, says Helen Croft, head of underwriting strategy at AIG Life.
“It breaks my heart to hear that we’ve had to turn down someone’s claim because they had a medical issue that was being investigated when they applied for insurance, or because they hadn’t been completely honest with us about the amount of alcohol they drink, for example,” adds Croft.