People with impaired lives are vulnerable and in need of protection, Nicky Bray explores why it is so important for them to take out the right cover to protect both their dependants and themselves.
We have all heard the quote from Benjamin Franklin that "In this world nothing is certain but death and taxes". Despite medical advances, we have yet to find a miracle cure for all illnesses and so death may come earlier than expected for a proportion of the population.
As household budgets become more stretched, protection may seem less of a priority. The time and cost involved is likely to put off those with ‘impaired lives' i.e. people with significant existing medical conditions, from considering protection cover, placing it even lower down their list of priorities. However, it can be argued that these customers have more need than others for organising some protection cover as they have a higher probability of dying prior to repayment of their mortgage or while they still have children.
While the vast majority (75-85%) of applications for life cover will currently receive standard terms acceptance, 5% may have their cover postponed or declined and the remaining 10-20% have a loading applied. Fewer non-standard applications go to policy issue than those accepted at standard rates and, although the lapse rate for impaired lives business tends to be lower, this results in many of these customers being without any protection cover in place.
We can help to close the protection gap for these more vulnerable customers by managing their expectations of the process. It is important therefore to understand what the most common ‘impaired life' conditions are, the underwriting process for these lives and how changes in health policies may highlight more customers with medical conditions.
In 2004, the Department of Health agreed a new contract with the medical profession that included a requirement to collect certain data on their patients. This data, the Quality & Outcomes Framework (QoF) is now providing a picture of the numbers of customers being treated by GPs in England for certain illnesses and conditions.
The latest results for 2007/2008 (see table opposite) show the frequency of the specific conditions included in the QoF measurements occurring across all ages for England.
Some of these lives will be too young for protection cover, hence the proportion of customers that providers will see with some of these illnesses may be even higher.
The QoF figures demonstrate why a reasonable proportion of our protection customers are likely to need underwriting. If advisers are aware of the impact of these common conditions, then they can help to manage the expectations of the customer and ensure a successful sale.
Most providers now publish underwriting guides to common medical conditions, which detail the evidence required and likely decisions. Many also offer an underwriting helpline with direct access to the underwriters - these can be invaluable in allowing an adviser to discuss the details of his customer's medical history and establish likely outcomes.
Many of the common conditions have been detailed in previous editions of COVER's Disease of the Month section so we will just look at a few of them here and focus on the underwriting decision for life cover.
High blood pressure/high cholesterol
A report would usually be requested from the customer's GP to confirm their current/recent blood pressure and/or cholesterol test results. If raised, e.g. a blood pressure reading over 145/95 or cholesterol over 6.5, then a loading would be imposed based on how high the results are. There may be an additional extra loading if they are smokers or overweight.
Asthma
Most asthmatics suffer fairly mild symptoms and pose little or no risk so would be acceptable at Standard Rates. However, if they are smoking or have frequent and severe attacks requiring the use of steroid treatment then a loading will probably be imposed.
Diabetes
Loadings for diabetics will depend on their age, whether it is Type 1 or Type 2 diabetes (i.e. dependent on insulin treatment or not), recent HbA1C test results to show how well they are controlling the disease, and whether they have any diabetic complications such as eye or foot problems.
Coronary Heart Disease (including Heart Attack & Angina)
If the customer has suffered a recent heart attack (myocardial infarction) or recent onset of angina they would normally be postponed for 12 months. After this period, a loading would be imposed based on the age at onset, the extent of the heart disease, the severity of any ongoing symptoms, the results of tests such as ECGs, and any extra risk factors such as smoking, raised blood pressure or cholesterol.
Kidney Disease
Customers suffering from kidney stones would normally be accepted on Standard Rates. However, acceptance and terms for lives with chronic kidney disease will depend on the level of damage to their kidneys, the results of kidney function tests (i.e. blood & urine tests) and the underlying cause of the loss of kidney function e.g. glomerulonephritis, polycystic kidney disease etc.
Cancer
If there is a history of malignant cancer then the application would normally be postponed, often for at least the first one to three years after the tumour has been removed and any treatment has been completed.
A temporary loading would then be imposed based on the type of cancer, the site or organ involved, how far it had spread (metastasised) and whether there have been any recurrences.
Once any required medical evidence has been received, the underwriters will assess all the information and make an underwriting decision, often using an online ‘manual' provided by their reassurer(s) to help them. The manuals give information on the disease, types of symptoms commonly associated with it, the normal treatment given, the likely prognosis, details of any good or bad features and finally detail the decision that should be made and, if applicable, the terms or rating that should be imposed.
The underwriters may also refer to their company Chief Medical Officer (CMO) for guidance if the customer has a rare or unusual condition, or a very complex medical history. The reassurance manuals and CMO are there for guidance but it will be up to the underwriter to use their experience and knowledge to make the final decision.
The Disability Discrimination Act requires underwriters to offer cover, where possible, at an appropriate premium, be open about the reasons for underwriting decisions and base underwriting philosophy on relevant and reliable data.
Likely underwriting outcomes for ‘impaired lives':
- Accept the application with a permanent loading to the premium.
- The underwriter will usually determine the decision as a % of extra mortality, e.g. +50%, +200% etc. Some providers will then convert this to an equivalent additional or extra ‘years to age' to provide the new quote. These extra ‘years to age' are not a measure of the reduced life expectancy but a method for ensuring the correct revised premium is calculated and quoted.
- Accept the application with a temporary loading to the premium.
- Temporary loadings are usually expressed as a per mille (per thousand of sum assured) for a set period. e.g. two years, five years etc. They are usually used for ratings for tumours, where the risk reduces as the customer survives longer without a recurrence, or for short-term increased risks such as a recent suicide attempt.
- Postpone the application either for a set period, for example for three years if recent treatment for cancer, or until further information is available, e.g. if some test results are awaited.
- Decline the application - typically fewer than 2% of applications for life cover will be completely declined
The initiative recently launched by the Government for vascular screening of all people in England between ages 40 and 74 aims to reduce the levels of heart attacks, strokes and other early causes of death such as kidney disease. This is good news for customers and insurers as any reduction in mortality should result in lower basic premiums over the longer term.
However, the earlier identification, diagnosis and treatment of conditions such high blood pressure, high cholesterol and diabetes may result in increased numbers of disclosures by customers prompting the need for underwriting. With the protection gap set to grow ever greater during the economic downturn, it is more important than ever that advisers work closely with insurers to ensure some form of cover for impaired lives.
Nicky Bray is senior underwriting developer at Zurich UK Life
