The Office of Fair Trading’s second report on the health insurance sector has backtracked on its original recommendations to discontinue the moratorium approach to underwriting.
The original proposals were made in July .1996.
But while the OFT has made a U-turn on its earlier report, it has introduced certain conditions if the practice of not enquiring about medical history and not covering pre-existing conditions for two years is to continue. Moratorium underwriting will now only be acceptable if the insurer:
• Establishes the consumer’s need for the policy.
• Explains, orally, and then in writing, the essential features of moratorium underwriting of health insurance, paying special attention to the extent to which pre-existing conditions (PECs) are covered, before the consumer enters into a contract.
• Stresses the inadvisability of foregoing medical advice in the period before PECs are covered.
• Monitors the sales process to ensure the above procedures are adhered to and provide evidence in cases of dispute.
The report also sees director general of fair trading, John Bridgeman, laying down an ultimatum to the health insurance industry. It has been given until September 30, 1998, to produce a code of practice defining core term products.
If the industry does not respond, it will be liable to statutory regulation.
“The response of this £2 billion industry to recommendations in my 1996 report was dismal. Most of the recommendations sought the industry’s involvement in improving self-regulation but the response, on the whole, was negative.
“Disappointingly, no convincing alternatives were proposed. Health insurers have not shown much concern for improving information, choice and service to their customers,” said Bridgeman.
The OFT said in its first report that it was concerned consumers did not shop around because of the difficulty of comparing complex products.
The ABI commented that the difficulty with benchmark policies was the range of products would contract to “lowest common denominators”, reducing competition. And it criticised the OFT’s reiteration that consumers should be forewarned about likely future increases in PMI premiums. It said it doubted the usefulness of providing customers with this information when policies were renewed annually.
The latest report also reaffirms that the selling of long term care insurance should be regulated. Insurers were quick to respond to the report. Prime Health and Norwich Union Healthcare were generally pleased by the decision to recommend the retention of moratoria underwriting.
The two companies had commissioned independent research earlier this year which showed people were unhappy with the OFT’s call for the abolition of moratoria underwriting.
But both insurers expressed reservations about regulating moratorium policies.
“Why is the OFT calling for just one part of health insurance business to be regulated? I see it as unworkable and seriously unfair,” commented Mike Hall, assistant managing director at Prime Health. “The OFT has never produced any evidence saying that banning or regulating moratorium underwriting is necessary.”
Tim Baker, Norwich Union Healthcare’s commercial director, said he thought it was odd moratoria should be subject to regulation, but not full underwriting.
Nick Kirwan, product development manager for critical illness provider Pegasus, backed the OFT’s recommendations for benchmarks but added that some of the proposals seemed to have holes in them: “I don’t think the expression `core term products’ is helpful to the consumer at all.
“In this context the expression’ is wide open to confusion with `term assurance’. I would have preferred some other terminology, perhaps generic product.
“Rather than adding clarity they have introduced core term product, an expression that increases the scope to get muddled. I just wish that they had given a little more thought to the choice of words,” said Kirwan.