When is underwriting not underwriting? No, it’s not a trick question but a serious point and one I feel needs clarifying as far as accident, sickness and unemployment insurance is concerned, especially if the industry is to avoid attracting more negative press coverage in future and restore confidence in a much-needed product.
Readers will be all too aware of the toxic issues that have surrounded ASU cover in recent years, the most obvious being the way in which policies have been underwritten. But in itself, this statement is erroneous because ASU policies have not historically been underwritten until the point of claim, which obviously negates any underwritten value to some extent.
This has attracted the attention of the regulator and been the cornerstone of its thematic visits, enforcement orders and prosecutions. Coupled with this, the government has been critical of some spurious tactics adopted by sellers of these policies.
All this has driven a raft of changes affecting the way ASU cover is sold. Much of the negativity surrounding the product has only really surfaced in the past few years as the recession has taken hold and the number of claims has started to rise. With this increase in claims has come a corresponding rise in declines as insurers have tried to stem the tidal wave by enforcing terms and conditions that were previously ignored or relaxed.
ASU needs underwriting that generates premiums based on a range of factors that are specific to the client
More worrying are the insurers that issue new terms and conditions with significantly enhanced restrictions and in some cases dodgy get-out clauses to enable them to compete in the market but limit their exposure by hiding behind vague definitions and confusing rhetoric.
We all known what must be done but either through lack of political will, cost issues or sheer unwillingness to move first ASU cover providers have been slow to react.
What is required is simple but costly to implement in practical terms, which is why I suspect we have only seen tinkering at the edges to date.
So we’ve seen a rise in the number of firms offering ASU underwritten at point-of-sale but on closer inspection this is seen to be a case of smoke and mirrors.
In fact, insurers have simply adopted a decline-based approach to underwriting. In other words, if you work in certain occupations you’re a straight decline.
To me, this is not underwriting. Sure, it’s limiting the risk exposure of the insurer and therefore could be loosely interpreted as underwriting but it’s a blunt instrument that does nothing to restore the confidence of the public or the adviser community.
There are one or two lifestyle-based policies on the market which have elements of ASU cover available as additional options but these are not pure short-term income replacement or payment protection contracts.
They are designed to provide sustainable protection which usually has life cover at its foundation, plus a range of bolt-ons to fit around the lifestyles of policyholders. These policies are underwritten at point-of-sale, benefiting from the legacy of underwriting requirements built into life insurance policies.
It’s this approach to underwriting that has not yet made it as far as ASU cover providers and that is what must change. The product needs underwriting that generates premiums based on a range of factors specific to clients, not just age.
This must be a premium that is unique to the client as well as reflecting the risk the insurer is willing to take.
Assuming there has not been any non-disclosure such a policy would include an inherent claim guarantee by providing clients with a level of certainty that is missing at present.
Dangers of wanting the best of both worlds
As has been demonstrated with brutal clarity recently, price comparison websites that try to operate in more than one distribution market walk a tightrope.
Of course, I am referring to the gaffe by a leading price comparison website.
In a recent press release it stated that brokers no longer offer a meaningful service because more than 90% of mortgage deals are offered on a direct-only basis from lenders.
Unsurprisingly, this prompted a swift and merciless retort from the intermediary community which was quickly followed by a retraction by the website that its figures may have been erroneous and that it valued the broker channel.
It claimed the whole thing was a silly misunderstanding but I’m afraid the damage had already been done.
Paaleads.com, which is the wholly-owned lead distributor for the website, tried to limit the damage done with a public and unreserved apology for the comments made by its parent company.
This in itself was strange as you might have expected the parent company to issue the apology rather than its broker-dependent subsidiary, but maybe that in itself speaks volumes.
At best this shows that the organisation is arrogant and not joined-up in its thinking, at worst it demonstrates a lack of understanding of the markets in which it operates.
It also shows that it must maintain a delicate balance if it wants to keep a foot in either camp.