Most guidelines issued on critical illness (CI) assume policyholders will be accepted at standard rates but this is by no means always the case. Around 15 per cent of applications have premium loadings or – less commonly – exclusions imposed or are declined altogether.
Lincoln Financial Group chief underwriter Jack MacNamara says: “Underwriters pay much closer attention to people with a prior history or family history of relevant conditions for CI than they do with life assurance or income protection (IP). If we as an industry were not allowed to use family history for CI, the cover wouldn’t exist any more.
“Industry-wide claims figures are proof of how vigilant CI underwriters have been. They show cancer claims running well ahead of those for stroke and heart disease which contrasts with statistics for the population as a whole, where the latter are far more prominent. This is because we can underwrite out cardiovascular risks through indicators such as weight or high blood pressure but cancer can happen at any time without any prior warning.”
Loadings tend to be more severe than for life assurance. Well-controlled hypertension, for example, may attract a 50 per cent CI loading but be accepted at standard rates for life. Maximum CI loadings tend to be 200 per cent, compared to 300 per cent for life cover. Unless there are exceptional circumstances, those who have previously had a core condition are unlikely to be able to obtain CI cover at all – even though they may be accepted for life assurance.
Because the CI field dates back only to the mid 1980s, insurers tend to use industry-wide statistics to set rates, meaning that there is a greater uniformity of approach towards non-standard risks than on the life side. However, underwriting attitudes can still differ markedly.
Even insurers who are part of the same group can take very different stances towards the same CI risk. Allied Dunbar, for example, is known to try harder than most to accommodate non-standard cases and is prepared to offer loadings as high as 350 per cent, whereas Zurich Life accepts fewer than average non-standard cases and is not prepared to issue loadings higher than 150 per cent.
Intermediaries should, therefore, always make multiple applications to ensure they get the best terms for clients. Those seeking to get conditions excluded rather than loaded may have to conduct a long hard search simply to find an insurer willing to co-operate.
CI insurers have traditionally made little use of exclusions, knowing that they must exclude not only a single condition but other related conditions. Non-standard risks could end up with only half a contract. If, for example, an insurer was to exclude a heart attack, it would also have to exclude coronary artery by-pass surgery, angioplasty and possibly even stroke.
Total permanent disability (TPD), which is often sold as an add-on, is the one area where exclusions are relatively commonplace, but some insurers can accommodate high-risk occupations. Scottish Provident, for example, is prepared to offer own occupation TPD to surgeons and dentists at a 100 per cent loading to its TPD premium. Pegasus is not prepared to offer them own occupation TPD but will instead offer them TPD on an “any suited occupation” basis at standard rates.
Although most other exclusions concern non-core benefits, some insurers are prepared to exclude cancer for previous sufferers and Scottish Equitable is unusual in being able to exclude certain specific types of cancer such as malignant melanoma and testicular cancer.
Pegasus also prides itself on an ability to exclude multiple sclerosis in cases where there has been a lengthy remission since diagnosis, especially for older risks. In such cases it also excludes blindness, TPD and loss of speech, but only if they have actually resulted from multiple sclerosis.
Attitudes towards exclusions are, however, changing in the wake of the gradual implementation of the Disability Discrimination Act, the second stage of which came into effect in October 1999. The act allows discrimination if there is increased risk but the lack of existing case law makes it an area that insurers must treat with caution.
Skandia Life life marketing and technical manager Colin Jelley says: “I can count the number of times we have excluded a particular illness for CI during the last 10 years on the fingers of one hand but we are actively looking at this position and considering the way forward to accommodate more exclusions.
“There is clearly an identifiable need in the market. If, for example, someone was about to go blind then why shouldn’t we offer them CI cover but exclude them for blindness and TPD which occurs only as a result of blindness?”
IFAs approached by clients who are likely to prove non-standard CI risks can either shop around for the best deal themselves or refer the case to a specialist intermediary – all those detailed in Box 2 are willing to consider commission splits.
Most specialist intermediaries acknowledge that while they have developed a good bedside manner and knowledge of the marketplace they are not actually doing anything beyond the capabilities of a non-specialist. They begin by gaining a sound understanding of an applicant’s medical history and contacting half a dozen different underwriters by telephone to gain an indication of the terms they are likely to grant. They then submit multiple applications for around four of these and arrange all necessary medicals simultaneously with a single doctor.
The initial phone call helps to reduce the workload and to prevent unnecessary declinatures which would then have to be declared by the client on subsequent insurance applications.
Penny O’Nions, principal at The Onion Group, based in Amersham in Buckinghamshire, says: “We might occasionally draw an underwriter’s attention to a new drug or new piece of research but by and large there’s no rocket science involved.
“It might take a non-specialist one and a half to two days to place a number of enquiries when I might be able to do it in an afternoon. The non-specialists might want to refer cases to us so they can earn more money from something they specialise in, but, on the other hand, once they’ve handled their first case they will have started building up knowledge and expertise.”
Insurers emphasise that they do not have preferential rates or service levels and that consumers are not disadvantaged by approaching them via a non-specialist. Many have underwriting help-lines and, although these are often manned by support staff, intermediaries who are persistent should be able to get through to the underwriters themselves.
Chichester-based intermediary Direct Life & Pensions, which sells low cost life cover and health insurance by telephone and via the internet, goes so far as to suggest that expertise in non-standard risks is simply a by-product of volume business. It handles around 250 CI applications a month and has a team of three full-time staff devoted entirely to making multiple applications.
Managing director Michael Ward says: “I feel those who use the specialist intermediaries are actually at a disadvantage because they lack our breadth of experience. We make initial phone calls before making multiple applications but we never make more than three calls because we always know the best three underwriters to phone.”