If you're diabetic, slightly rotund - or enjoy paragliding - then insurers may charge you extra. Almost no one seems to be a standard proposition these days, writes Samantha Downes
Advances in medical science may have made it possible to treat the once-untreatable, but more and more advisers are finding that getting clients reasonably priced health cover is tougher than getting to the top of an NHS waiting list.
Premiums have always been higher for those clients insurers considered to have a special health risk. This so-called 'loading' of premiums occurs because having such a risk will, underwriters predict, make them more likely claimants, and therefore more expensive in the future.
What is now worrying advisers is that the definition of 'special risks' has widened to such an extent that most applicants are being charged higher-than-standard quoted premiums. This is combined with increased competition in the market, which has seen insurers battling to offer the lowest premiums and streamline the underwriting process.
Until a couple of years ago, special health risks were in most cases fairly obvious, says Mark Loydall, adviser and director of Cambourne Financial Planning. He cites people who have recently had a heart attack, or someone who had been treated for cancer, as being those who might find themselves paying higher premiums - if they could get health or protection insurance at all. "But now it seems the goalposts have changed completely. In fact it's very, very rare that I will be able to get a client a quote that is not loaded," he says.
Kevin Carr, senior technical adviser at LifeSearch, says the number of new applications treated as non-standard has doubled in the last seven years and that over a third of clients could now expect to have loadings.
Loydall believes advances in medical science have enhanced awareness of the impact of minor conditions, such as high blood pressure, and allowed insurers to see them as potentially life-threatening. He says: "A few years ago a client with slightly raised blood pressure would not have had their premiums loaded. Now they might find themselves paying up to 25% more."
Julie Smith, research manager at Chase de Vere Financial Solutions, says the list of special health risks is "endless" and many conditions that were once overlooked now attract a loaded premium. "Smoking is an acknowledged special risk, but now we are finding that family history is becoming almost as important as self-imposed risks. Someone's father may have had a condition that will load their premium, even though they themselves have no sign of anything wrong," she says.
Insurers have also been quick to load premiums on to clients with dangerous hobbies, says Smith. "A client who goes paragliding can find their premium loaded by 50%."
Appliance of science
Medical advances may eventually offset some special risks. Smith says diabetics able to control their condition successfully through diet may find themselves considered a minor special risk. In contrast, those who don't control their condition might find no insurer will cover them.
And, like diabetes, 'body mass index' (BMI) is becoming a new special risk buzzword. Roger Edwards, product director at Bright Grey, says a few years ago BMI was largely overlooked. Now it is one of the main yardsticks by which insurers measure health risk.
For example, someone with a BMI of below 21 will be underweight, someone between 21 and 25 will be healthy, and those over 30 will be obese. Smith says: "Clients with a BMI of over 30 may not get any cover, or will have an extremely loaded policy." But she believes BMI is being taken too literally; for example, she claims four-time Olympic rowing gold medallist Sir Matthew Pinsent would have a BMI "off the scale".
Exceptions
These exclusions do not apply across the board. Someone with cancer in remission might lose their 'special risk' tag, as might some HIV positive policyholders. It depends on the insurer. Edwards says: "It's ironic, but certain studies show that someone with HIV who looks after themselves and takes all the drugs is less likely to die than someone with uncontrolled diabetes."
Being faced with so many variables requires advisers to know their clients well. Smith says the nature of health insurance means it has often been sold as an add-on, so advisers may already be unwittingly familiar with some of their clients' medical backgrounds.
But advisers have to be on the ball if they are to avoid non-disclosure issues. Smith says: "If someone has a hobby they do not declare, it may be that they do not consider it important - but this is where advisers really have to make sure they ask all relevant questions."
Many additional details will be picked up via the follow-up call insurers normally make after the initial application. But Smith warns there is no substitute for knowledge, while Loydall believes managing clients' expectations is the greatest challenge for advisers selling protection: "Clients can get very upset when they find that the fact their father had a heart attack is going to load their premiums." Loydall also warns advisers to be careful of clients who seem too healthy. "Anyone who is 60 and claims not to have visited the doctor in the last 10 years is lying, on the whole."
Once a special health risk is deemed to exist, the client and adviser will be faced with three options. They can accept the loaded premium, cancel the policy (remaining uninsured) or opt for a postponement. This last option is more applicable to cases where someone has got a retrospective condition (for example, if they have just given up smoking or are still awaiting the all-clear after cancer).
Gerry Warner, protection development manager at Zurich, says the disclosure of a medical condition will not necessarily lead to special terms being imposed if the likelihood of increased mortality is deemed to be minimal (such as with well-controlled asthma), or if the passage of time has lessened the risk (such as with a past history of cancer). He says that once an extra premium is quoted the underwriter will use a rating schedule. This may be the company's own rating schedule or, as is often the case, one provided by their reassurer.
"These schedules are based on statistical analyses of diseases and illnesses and regularly developed in line with medical science and advances in treatments," Warner says.
There is also an option, says Edwards, of underwriting special health risks by excluding the risk altogether although Carr points out that there would be some loading of related risks, of say high blood pressure and its link to increased likelihood of a stroke.
Differing attitudes
One insurer's special risk may not have the same rating as another. Warner says: "Such variances are usually influenced by a number of factors, which include pricing structure, reassurance basis, claims and experience. However, an insurance company's approach to underwriting any specific impairment will often be subject to regular review, especially if highlighted as being too out of step with the market, to ensure its continued relevance."
If a client does have a special risk, advisers will submit several applications to insurers to try and get the best premium. This is no small job because each application requires a doctor's certificate, at a cost of £70 each. To cut the cost and time of obvious special risk cases, advisers are turning to specialists or "intermediaries of intermediaries". These include Risk Placement Services (RPS) and the Special Risks Bureau (SRB).
RPS and SRB will manage the application service from start to finish and will submit simultaneous applications online without the need for several GP certificates or application forms. In return, they take a cut of the adviser's commission - anything from 10% to 30%.
Geoff Tresman, managing director of RPS, says the service is all online and uses independent underwriters.
"This is the most important part of our service," he says. "We have an extremely sophisticated process so we have a better knowledge of risk than many of the life offices."
Tresman says the number of failed applications means life offices are wasting at least £40m a year, which he claims is passed on to the consumer in increased premiums. He blames this on the underwriting process employed by the life offices. "There is enough inertia in the industry to allow insurers to do this, for the moment," he says.
The specialists
But services like SRB and RPS are still tied by the insurers, as insurance companies themselves are keen to point out. Warner says: "With their own internal underwriting team, they will know who not to approach with certain risks, and indeed will screen out applications that they know stand no chance of being placed. At the end of the day, however, providing terms of some description will still very much depend on the attitudes of the various insurers."
Finding such insurers means choosing the ones with a more specialised underwriting process. Carr says larger life offices, such as Norwich Union and Legal & General, have a more uniform approach to special risk that can leave many clients out of the net.
Partnership Assurance (formerly the Pension Annuity Friendly Society) specialises in impaired risk. Lutine Insurance, Friends Provident, and Bright Grey also take a more sympathetic view as do Skandia and BUPA.
"Lutine is good but it only offers short-term cover, so is only recommended for very special cases," says Carr.
"It's not really a case of being a 'bad insurer', more a case of looking for one that suits the client's unique needs and big life offices don't tend to be geared up for that," says Smith.
Looking to the future, Loydall says the shortage of underwriters in the UK means things are likely to get worse before they get better and that advisers with special risk clients may need to prepare themselves for a tough ride. Understanding the needs of your clients, and how best to address them, is therefore crucial.
