Claims statistics for individual income protection (IP) show that mental illness has overtaken musculo-skeletal disorders (mainly bad backs) as the leading cause of claims. This is hardly surprising, given the current pressure in many professional and clerical occupations. Teachers and National Health Service workers are particularly at risk. And the problem is even worse in banking, finance and insurance, according to a November 2000 Trades Union Congress survey.
The safety reps cited heavy workloads and staff cutbacks as major causes of stress at work. They also stated that, despite the Working Time Directive of 1998, excessively long hours are still commonplace.
The stress epidemic is calling into question the standard method of rating IP. Under the conventional system, premiums become progressively more expensive as the manual work content of the job increases. A class four occupation, such as a welder, pays three times the premium charged to a class one occupation, such as an office manager. Manual workers have historically suffered greater morbidity than clerical workers, and been more exposed to accidental injury. Also, it takes less of a disability to prevent a blue collar employee from working.
However, with rising claims for anxiety, clinical depression and ME, insurers have responded by re-classifying certain occupations. Many now put teachers in class three or even class four. Norwich Union Healthcare product marketing manager Nick Homer says: “We’ll cover teachers under class one, with a mental illness exclusion. Otherwise it’s class three, which costs more than double.
“Historically, the teaching profession gave ill-health early retirement fairly easily. It has cost them dearly, and they now take a harsher view on early retirement.” So stressed-out teachers claim on their IP policy instead.
The insurers have taken a fresh look at manual occupations, to see if premium levels can be made more affordable. Unum introduced its Essential Ability contract back in 1997. Aimed at the blue collar sector, it certainly brought down the cost considerably, though the cover is not so good as for clerical workers.
Unum marketing director Eugene McCormack says: “It’s a good entry product for someone who is concerned about cost.” But he candidly admits: “We haven’t invested enough effort into communicating the benefits of the product to independent financial advisers (IFAs). It’s not embedded in the IFA community, indeed I suspect many IFAs don’t know it’s available. But when you are innovating, it takes time for the message to get across.”
Essential Ability pays out if the insured fails three out of 11 activities of daily work (ADWs) or a mental health test. But not everyone thinks ADWs are the answer to getting the price down.
Norwich Union Healthcare used to have a moratorium-based product which was generically priced for blue collar workers. It was a restricted policy, excluding mental illness, and was withdrawn after a short run. Homer says: “The right route is Rolls-Royce cover. I’d rather they have a lesser monetary amount of cover but understand when they get paid benefit – ie, when they can’t do their job.”
Another reason why products for manual workers have not taken off is that IFAs tend not to mix in these circles, preferring the high net worth sector. And business can be difficult to get on the books if the client has had any illnesses.
Leeds-based IFA Diane Saunders says: “It’s not worth going for the manual sector unless you want a halo round your head. The underwriting is so strict. A client could have had a twinge of backache several years ago, and the insurers don’t want to take them on. You have to deal with reputable companies and tell clients to put down as much of their medical history as they can possibly remember, even minor childhood illnesses. Otherwise, when there’s a claim, the companies will say there was an undisclosed pre-existing condition.”
Derek Connor, a broker from Blackburn, confirms this opinion. “At the moment, trying to get the ratings off for manual occupations is well-nigh impossible, especially for women,” he says. “I did a quote for a mechanic for £1,000 a month benefit, and the cost was £250 a month. Another insurer was even more expensive. This man might just as well save his money in the bank. Many IFAs give up because of this and stick to professionals. The commission doesn’t justify the work involved for manual occupations.”
Listening to anecdotes like this, there appears to be little prospect of spreading individual IP to a wider market via the IFA channel.