The ideal application process is of course as quick and simple as possible but are shortened forms putting customers at risk as advisers ignore past industry lessons? Alan Ferguson reviews the issues
Everyone in the industry supports making protection insurance more easily understood and buying it as efficient and hassle-free as possible.
The best solutions will obviously be those that are as simple as possible but which also provide sufficient information for effective risk management and pricing.
Some might have it otherwise but it is important to recognise that these two things to varying degrees are in conflict. It is important that the industry continues to find better ways of managing this conflict and 'ticking both boxes'. But, in pursuing that aim, there is also a danger that the line between a simplified approach and a simplistic one is inadvertently breached.
Obvious? Maybe, but the industry has explored various simplification avenues before, only to find good reason to retreat from some of them.
So what kind of approach might make an application genuinely simpler and which, although superficially attractive, may lead to hazards for advisers and clients?
Dragging things out
Playing devil's advocate and taking more than a few liberties with what remains a complex subject, some of the questions advisers bother to include are open to common sense challenge. For example, it is still widespread practice to ask all applicants about recreational drug use and past sexual history. Advisers know full well that those at particular risk on those factors seldom answer truthfully and it is all but impossible to prove the contrary in any case.
Inclusion in the initial application for everyone, it could be argued, helps lengthen the form without commensurate risk management benefit. As if that were not enough, the way information is asked for is also seen by many as confusing and, on occasion, unnecessarily intrusive.
In the case of the sexual history questions, for example, separate boxes are provided for both people to answer in joint life applications that suggest it is permissible to send details separately should they prefer. Just how many rows and even divorces has the industry been responsible for?
More straightforwardly, it has been understood for some time that questions about alcohol consumption measured in 'units' confuse almost all applicants. The answer is habitually understated, either because of this confusion or social denial so therefore is largely useless.
But this is by no means to suggest that the real answers in any of these areas are irrelevant to risk assessment, but merely that some of the ways the industry seeks to elicit the information contributes to a longer and less than excellent buying process yet sometimes adds only questionable value to justify inclusion.
There is clearly scope for more fundamental re-engineering of what is asked, from whom, when and how. A great deal of development work does go on but many of the subject experts concede that much of this is layering on the same model rather than reinvention.
That said, it is simplistic - as opposed to simplifying - to assert that a radical approach inevitably supports reversal of underwriting history and a wholesale reduction in the number of questions asked without consequence. Such an approach is not unreasonable or unsustainable. It is certainly not new. It simply does not and can not allow for the same degree of risk evaluation. It therefore has to be accepted that the premiums for such a product will be significantly higher overall and will be averaged to a greater extent between buyers.
For the last 10 to 15 years, the entire protection buying market has unrelentingly placed low premiums above all other features. Underwriting issues tend to come in a poor and consistent fifth or sixth position of importance in adviser and customer research.
This leads on to the final point: when is a long application not a long application?
Length matters
The length of an application is often stated in terms of the absolute number of questions asked. This is certainly the common shorthand used by advisers - the lower the number being thought of as better.
However, reducing the number of questions without reducing the scope of what is asked about masks a major risk for advisers and customers as it usually means questions are bundled together. A range of individual risks in the same general area is listed in a single question or sentence rather than asked as discrete questions or as a series of sub questions specific to a named ailment, treatment or condition.
Legal & General research shows that customers - finding the whole process less riveting than would be wished - typically scan questions rather than consider them in detail. This is a bear trap for even the shortest most directed question but, where a question is lengthy and/or includes a list of things within the sentence, failure to identify and evaluate each item increases the risk substantially.
The danger in this type of 'simple' or shortened application is that non-disclosure rates are much higher. This means that more customers effectively have their underwriting transferred to the point of claim and declinature for non-disclosure rises. Simply put - at what price is the question? For some, a very high one indeed.
No other issue better illustrates the difficulty of getting the balance between customer engagement or tolerance and effective risk management right. Advisers need to ensure they choose new avenues with the prospect of genuine simplification - it really matters to customers.
Alan Ferguson is marketing and channel development director at Legal & General.
