Moratorium underwriting has generated a lot of debate across the health insurance industry over the years. Sam Barrett finds out why it’s firmly back on the agenda.
Moratorium underwriting may have come under fire from the Office of Fair Trading in the past, but appetite for this form of underwriting never went away. And, although most insurers have always offered a choice of full underwriting or moratorium, WPA finally returned to the fold earlier this year when it reintroduced moratorium underwriting on its Flexible Health plan after a break of 13 years.
“We’ve been working more with advisers and they kept asking for moratorium underwriting,” explains Mark Southern, general manager, sales and marketing at WPA. “We still believe full medical underwriting is more effective as it provides clarity of cover but there is room for both.”
Its moratorium is in line with most others in the market. Any medical conditions the individual has suffered in the five years before the policy is taken out will not be covered for at least two years. Then, provided the person is free of symptoms, treatment, medication or advice for two continuous years after the policy starts, the condition will be covered again.
A number of reasons have made moratorium underwriting a popular choice. The speed and simplicity of the application process is a major factor. While you’ll face a 12 page application form, including six pages of health and lifestyle questions, if you opt for full medical underwriting on WPA’s Flexible Health plan, there are just eight pages for its moratorium application form, with the medical questions limited to details of smoking habits and the individual’s GP.
Mike Blake, compliance director at PMI Health Group, the independent advisers, says this means moratorium underwriting can work particularly well for people with a clean bill of health.
“If there are no health issues, moratorium saves time and administration,” he says. “You could take out cover quickly, perhaps even completing the forms online.”
As well as appealing to those who haven’t suffered any health problems, moratorium underwriting also has a place for those who have had treatment in the past. Richard Kerton, head of medical insurance at PMI Partners, another intermediary, says he sees plenty of clients who can benefit from moratorium underwriting.
As an example of the type of health problem that can be treated more favourably by moratorium underwriting he points to knee arthroscopy, a minimally invasive treatment that can be used to treat many orthopaedic conditions such as torn floating cartilage.
“If someone had undergone this treatment just before they took out cover it would be excluded under full medical underwriting but, under many insurers’ moratorium underwriting, as long as they didn’t need the treatment or suffer any symptoms for two years, they would be covered again. WPA’s decision to introduce moratorium underwriting does open up its products to a wider market,” he adds.
The need to stay symptom, treatment and advice free for two continuous years means that long-term pre-existing conditions such as high blood pressure are unlikely to ever be covered but there are plenty of other health conditions that could be covered again. These include cataracts, joint replacements, providing it’s not a result of an underlying condition such as osteoarthritis, and the removal of moles and cysts.
These benefits mean moratorium underwriting is relatively popular. For example, Ally Antell, senior proposition and strategy manager for PMI and group risk at Aviva UK Health, says that just over 30% of his company’s book of individual medical insurance is written on a moratorium basis. “This is fairly consistent with new business and through both the direct and broker channels,” he adds.
But while it is a popular option, and WPA’s return to moratorium underwriting is welcomed by advisers, there are potential downsides.
Brian Walters, principal of Regency Health, explains: “Moratorium underwriting has its place but lacks clarity and causes delay at the point of claim. Full medical underwriting should always be the starting point and advisers should never use the moratorium for their own convenience.”
This lack of clarity was one of the failings highlighted by the Office of Fair Trading when it reviewed the health insurance market back in 1996. It found there was a risk that consumers could be unsure which risks would be covered until they made a claim.
As well as uncertainty about what is covered, delays can also occur at point of claim as insurers liaise with GPs to check whether treatment is covered. But, while there is this additional step in the claims process, Aviva’s Antell says it rarely causes a problem. “GPs are usually very quick to provide the necessary information,” he says. “It’s a different situation to GP reports for protection applications as the GP is aware their patient’s treatment is dependent on their supplying information to the insurer.”
While this issue is usually resolved without problem, there is a danger that the moratorium may lead to individuals putting off medical intervention for two years so that a condition could be covered again. This could potentially damage their health.
Furthermore, PMI Health Group’s Blake says that insurers run a reputational risk by offering moratorium underwriting.
“If there’s any risk that consumers don’t understand what they are taking out this will reflect badly on the insurer, even if the fault lies with another party’s sales process,” he explains.
Aware of the risks, insurers and advisers do take steps to ensure consumers are protected and fully understand the implications of moratorium underwriting.
“We’re very careful that it’s explained properly. It is a more involved conversation and our direct sales people have much more extensive call scripts to use when talking to customers about moratorium underwriting,” explains Aviva’s Antell, adding that sales calls are significantly longer when selling moratorium products.
Regency Health’s Walters agrees that it is open to misunderstanding.
“A careful and precise explanation of the rolling moratorium is essential, lest the client gets the impression their pre-existing conditions will automatically be covered after two years,” he says. “Moratorium underwriting should only be used where it affords a genuine advantage for the client.”
Insurers also need to be careful moratorium isn’t seen as a way to get bad risk covered. For starters, there’s no incentive, either in terms of premium or commission, to sell moratorium rather than full medical underwriting.
Additionally, filter questions are increasingly used to ensure that only the cleaner risk can be offered moratorium underwriting. For instance, WPA has set criteria for its moratorium customers. With these, applicants must not have been diagnosed with heart disease, stroke, diabetes, cancer including those undergoing regular screening due to family history of the condition, nor had a surgical procedure or arthroscopy for a joint or back condition. Additionally they must have a body mass index between 19 and 32.
WPA’s Southern adds: “This ensures that people with these health conditions have the clarity of full medical underwriting and don’t try to avoid seeing the GP during the two year period but it also helps us protect our book of business for our other customers. Our moratorium may not be as open as others but we don’t want it to damage our existing book of business.”
Some of the other insurers also use filters to keep poor risk off their books. For instance, Exeter Family Friendly excludes people with a history of heart disease, stroke, cancer and joint replacement as well as those aged 65 plus from its moratorium plan.
Exeter possibly has more reason than others to protect its book of business as it is the only insurer to offer a fixed moratorium. With this, any medical conditions the customer had in the five years before taking out the policy will be covered automatically after two years, regardless of whether they recurred during that period.
Its brand and marketing manager, Nick Jones, explains: “We launched this early last year as we wanted to widen our business. It is popular but it’s also designed to last rather than simply win market share.”
Not everyone is convinced though. For instance Kerton points to the fact that PruHealth also used to offer fixed moratorium underwriting but withdrew it last year. “There is a risk that it will attract bad business,” he says. “They do have filter questions to ensure they don’t pick up people with major health conditions but it can often be the small things that cause problems.”
Exeter’s Jones admits there is a risk but says that current claims experience indicates there isn’t a problem with a fixed moratorium.
“We monitor claims all the time to be certain it works,” he explains. “Changes could happen to medical treatment that would make it unviable but at the moment there are no problems.”
And, while Jones may need to keep a close eye on how his fixed moratorium performs, others will also be watching how the market shapes up with WPA once more providing moratorium underwriting to its clients.