The director general of the Office of Fair Trading is not best pleased. In July 1996 he issued a Health Insurance Report recommending that moratoria should be abolished. Instead of his wishes being met, the use of moratoria in PMI has continued to spread.
A moratorium is a device for excluding pre-existing conditions for a set period of years. The most common type of wording runs on the following lines: “Benefit is excluded for any medical condition, or related condition, which existed in the five years prior to the cover start date, until two years have elapsed without treatment or advice.”
The director general, John Bridgeman, was worried that customers would be conned by misleading sales tactics. They might be swayed by assurances that cover was available for those who had been declined under full underwriting methods. Salesmen might promise that pre-existing conditions would be covered after two years – without mentioning that clients must be trouble-free during this period.
It took the ABI until June 1997 to respond to the report. This was because the industry remains divided on moratoria, as on many other issues. All the same, an opportunity was missed. The ABI’s reponse was not made public, but no doubt it rubbished many of the OFT’s suggestions.
Bridgeman was not impressed with the response to what he thought was a good report. The OFT may stand by its views and is set to issue a further report. Though not on the scale of the original, it promises to be equally if not more pungent.
Meanwhile, some insurers have moved their position. Julian Stainton, chief executive of Western Provident Association, says: “Two and half years ago we felt the chill wind of competition. So we gave customers the choice of a moratorium, although we were uncomfortable about it. Within three months the OFT report came out. We gathered ourselves together and stopped our brief experiment. Basically we agreed with the report.”
He adds: “Those taking the moratorium were charged 10% more. Claims costs are at least 10% higher through the moratorium route. I can demonstrate that with our more intensive underwriting, our claims costs are significantly lower than for the industry as a whole. This is good news for our customers because they can be charged less.”
Exeter Friendly Society is another provident association which has gone back from moratoria to full underwriting. Exeter’s experiment with moratoria lasted from 1993 until January 1997. Chief executive Roger Cawse says existing customers will be offered the opportunity to convert to underwriting on request. However, Clinicare has moved in the opposite direction. Famed for underwriting medical conditions and loading premiums rather than applying exclusions, Clinicare nonetheless brought out a moratorium-based budget plan last summer. Even OHRA, a staunch member of the underwriting camp, acts under a third party agreement for Endsleigh’s moratorium driven scheme.
The major concern in the OFT report was that moratoria “greatly increase the scope for dispute when claims are made.” Little evidence exists to support this contention. Claims can still be rejected under underwritten policies. The ratio of repudiated claims varies only slightly between the two methods. With moratoria it is a shade over 5%, with underwriting about 4%. This is much less than the ratio for critical illness or permanent health insurance.
Nor is the Insurance Ombudsman snowed under with complaints. The Ombudsman completed 91 medical expenses cases last year, 25 of which involved moratoria. True to form, he found in favour of the policyholder in one-third of cases. Prime Health says it has received 100,000 claims over the last three years. Sixteen were referred to the Ombudsman because of the moratorium clause, of which two were upheld.
Indefinite renewal of moratoria
People sometimes complain because they have forgotten that moratoria can be renewed indefinitely. If a medical condition recurs, the moratorium rolls on for another two years. The Daily Telegraph scheme is the only one with a closed moratorium. For three years, preexisting conditions are not covered. After that, policyholders can claim even if the complaint has rumbled on ever since they signed up.
Old hands shake their heads at this, thinking it will end in tears. The scheme is underwritten by the European arm of the American Reliance National Insurance. “Foundation Health and Mutual of Omaha have gone,” observes David Potter of OHRA. “I just wonder how long the Daily Telegraph scheme can survive with its all-comers accepted approach.”
Providers using moratoria believe that they are far from being just a short cut to new business. Prime Health says: “Moratoria cost insurers more because of the cover provided for pre-existing conditions. David Potter concurs. He says of OHRA’s TPA activities: “We know we’re paying claims we shouldn’t be paying. There’s an element of manipulation – they’re going to see their doctor.”
Julian Stainton of WPA puts it more bluntly. “When you lower the degree of professionalism, you increase your problems. If you’re a hotel and you accept guests without a credit card imprint, I’ll guarantee your losses will rise.”
However, Prime Health points to the fact that while it offers the choice of both methods, 98% choose the moratorium. A customer survey showed that being able to do business this way was a major factor in their choice of PMI provider. Prime Health also supports its case through numerous claim examples which would not have been paid under underwritten policies.
Mr T, aged 63, took out a Primecare plan in January 1993. He had undergone treatment for a cataract in 1991, but last spring his doctor suggested he needed operations in both eyes. He was able to have the first operation within weeks, with the second one scheduled four months later. Under the moratorium, although the original treatment was in the five years before he took out his policy, two full years had elapsed without further treatment.
In another case, Mr B had long been embarrassed by his snoring. It stopped after his doctor had treated it as a sinus problem. He then took out medical insurance. When the problem returned a few years later he was able to undergo curative treatment almost immediately. Without the moratorium he would have had no cover. He would have faced a long wait on the NHS to be treated for what the State considers a nonurgent condition.
Prime Health’s moratorium clause leaflet is honest enough to admit that some conditions will be permanently excluded. It gives the example of someone taking tablets daily for high blood pressure. Such a person would not be covered for this or any related condition like heart trouble. This document has won the Clear English Standard from the Plain Language Commission.
In their enthusiasm for moratoria, some offices imply that exclusions are always permanent under the underwriting method. Far from it. An exclusion is sometimes applied for a period of one or two years because of a recent operation or treatment. The insurer wants to be sure the condition has subsided and will not recur.
In other cases, a review is possible on request, though the client may have to bear the cost of any medical report. Jan Lawson of West Yorkshire-based Private Health Partnership comments, “PMI is not something you can sell and then forget about. We try to get the exclusion lifted or narrowed down, so that it is not too wide.”
BCWA, which strongly supports the underwriting approach, quotes numerous examples of claims paid after an exclusion has been lifted. Elsie A was aged four when she became covered under her father’s companypaid scheme. Due to a history of ear, nose and throat infections, BCWA excluded treatment for such ailments. However, a GP’s letter confirmed she had only suffered a single attack of tonsillitis which had cleared up. So the exclusion was removed. Unfortunately, a recurrence meant she needed a consultation to crack the problem for good. She was successfully treated at the Portland Hospital.
Underwriting versus moratoria debate
Bill M’s intermittent back problems meant an exclusion clause, which was lifted after his GP confirmed that no treatment had been required for more than two years. But over-energetic gardening brought on lower back pain. An MRI scan was needed to confirm diagnosis and develop a progamme of exercises.
In these instances, the difference between having an underwritten or moratorium policy proved minimal. The vital point to note is that brokers have to ask for exclusions to be lifted. Insurers do not have automatic reviews of their existing customers to see if they can be more lenient.
The underwriting versus moratorium debate is set to run and run. There are advantages and disadvantages to both methods. But there is nothing wrong with giving clients a choice, so long as they fully understand the contract they are buying. Brokers will be hoping they continue to be allowed to explain the difference, without the nanny State interfering. The bigger problem in PMI is the exclusion of conditions from what appear to clients as unrelated visits to the doctor.