Andrew Wibberley questions why so many people continue to be rated when taking out protection insurance.
1 in 4 life insurance applications are rated today, compared to less than 1 in 10 a decade ago. The numbers are similar for critical illness and income protection.
That's 500,000 people a year who are told their insurance will cost one amount and are then told minutes, weeks or months later that will cost more.
Older lives are rated more often than younger lives so if your book is mainly over 45s then things will be even starker.
The impact on advisers (and underwriters) is amplified by rated applications taking more time to process. This means we spend much more than a quarter of our time on these applications.
How have we got here? Here's a dozen reasons why:
• The game we play - Showing the cheapest standard price has become more important than showing the most accurate price
• The world we live in - The majority of people want the cheapest price for themselves, rather than subsidising others
• Smaller ratings - The majority of insurers are now beginning to rate at +25% rather than +50%
• Lifestyle - People are generally less healthy and more obese
• Pressure - More people are suffering with stress or depression
• Better questions - Today's underwriting questions are designed to obtain more information
• Better answers - Advisers are more aware of the need to answer the questions properly
• The truth - Applicants are answering questions more honestly
• Consistency above commercial decisions - TCF means consistency is key and ratings are not waived for one customer as it would not be fair on the next one
• System developments - There is a correlation between increasing online acceptance rates and increasing ratings with electronic systems often erring on the side of caution
• Using online applications as a pre-sales tool - It's as easy to enter an online application as it is to get hold of an underwriter on a pre-sales line - so these cases are included in the figures
• More multi-apping? An increase in multi-applications for the same client (understandably given all the above factors) means the same person may be counted more than once
And all of this is in spite of the fact that people are living longer due to improving medical interventions.
Likewise ratings for many conditions e.g. cancer are reducing to reflect medical improvements and many conditions that used to be declined are now rated, e.g. HIV.
The future
It can be completely fair for one person to be charged more than the next three, but the process and messaging must catch up with this reality.
Research shows people overestimate life insurance costs, so for us to suggest it costs £10 for £100,000 just 10 minutes before telling actually for them it costs £20 is a bizarre process for the modern consumer.
There are some changes that could be considered in the short term, including:
- Including BMI in standard quotes (body mass index)
- Highlighting examples of how many applicants of that age bracket actually get the standard price
- Only give an indication of price when more information is supplied, as with home and motor insurance
In the longer term the industry will surely move to a truly personalised risk assessment model, with the concept of ‘standard rates' disappearing altogether.
Such deeper segmentation could be built on many different aspects, which will vary dependent on what the distributor knows about the customer, what the customer is willing to share and whether or if the customer is willing to continue sharing information with the insurer.
This is the future reality for protection insurance and to be successful, people on all sides will need to embrace and lead the change.
Andrew Wibberley is director of Alea Risk.
Further reading
Music to your ears: Why SARs and medical records really matter
