Coping with mental illness can be traumatic for the many people affected, however, an understanding insurance industry aware of customers' rights can offer much-needed support. Johanna Gornitzki reports.
Anyone suffering from depression or other mental health problems may feel they are the loneliest person in the world. But while people with mental health issues often feel isolated, they are far from alone in their suffering.
In the UK, it is currently predicted that as many as one in four people will at some point in a year have to battle with mental illness. In addition, about a third of the 1.3 million people claiming long-term incapacity benefit in the UK has a mental health problem (usually mild to moderate depression), according to Laing & Buisson's Mental Health and Specialist Care Services UK Market Report 2007.
But while these statistics make worrying figures by themselves, they do not paint a true picture of just how debilitating it can be to suffer from a mental health problem. Personal relationships are often affected and holding down a job can become an onerous task - in addition, recovery times can be painstakingly slow. Unfortunately, this long rehabilitation process often leads to financial difficulties, adding further strain to someone trying to cope with a mental health issue.
Could insurance help eradicate this burden? Looking at the various protection products, people with a history of mental health problems would not find it difficult to obtain critical illness (CI) insurance (apart from for total permanent disability), except if they had suffered from severe depression or schizophrenia.
For life insurance, it is also fairly straightforward, although past suicide attempts can often make it difficult for a prospective policyholder to obtain cover.
The area, however, where mental health problems do become an issue is when applying for income protection (IP), with mental health problems now being the main reason why policyholders claim on their IP policies. Typically, around 10% of people who have mental health problems would be loaded if taking out an IP policy. However, in the majority of cases, insurers would rather use an exclusion clause than making the cover more expensive, explains Matt Rann, head of underwriting and claims at Aegon Scottish Equitable.
a gap in Critical illness
But while there are ways to avoid rejecting a prospective customer, it may not be so straightforward for customers who are healthy when they take out insurance but later develop a mental illness. They may be covered by IP if they cannot do their job due to a mental health problem, but there is no real provision for this under a CI policy. Roger Edwards, products director at Bright Grey, believes there is a gap in CI products when it comes to covering mental health issues. "We did investigate trying to come up with a condition along the lines of 'gross mental impairment' to provide cover for things like bi-polar depression, but in the end it was so difficult to come up with a definition that was meaningful and 'priceable' that we didn't take it forward," he says.
When deciding whether a prospective policyholder would get a loading, exclusion or perhaps even be declined cover, underwriters try to look at a person's whole history. This includes looking at the number of episodes experienced, what type of treatment was used, when it happened, what caused the problem as well as the duration of the illness and the time off work. By doing so, providers believes they can paint an accurate picture of the person instead of just using statistics, which as Rann explains, could be 15 years old as it can take a while for new findings to trickle down and become credible.
Agreeing with Rann, Pulse's managing director, Paul Sandilands, says most cases of mental health problems fall into one of two categories. "First, there are cases where the mental problems may be linked or clearly attributable to one or perhaps a series of traumatic events, including marriage breakdown, bereavement or financial difficulties. They [underwriters] will look for positive signs of stability in the life of an applicant following treatment, so they will be looking for the building of long-term and stable relationships and consistent employment. Where these 'positives' can be established, we have been successful in putting life cover in place," he says.
The second group of cases can be described as those where the mental problem is attributable to a mental illness, a psychosis. These include bi-polar disorder (manic depression), schizophrenia and psychotic depression. These illnesses are treated the same way as the one in the first category, explains Sandilands. However, common symptoms of these conditions may be shown by the individuals not knowing they are unwell, and therefore, from an underwriter's point of view it is significant that the person can demonstrate a level of awareness.
One thing to be wary of though, Sandilands adds, is that underwriters will take into account any medication taken as some drugs could have an adverse physical effect.
People with a mental impairment, along with anyone with a disability, saw their rights increase in 1995 when the Disability Discrimination Act (DDA) came into effect. The Act states that it is illegal to provide goods, facilities and services to a disabled person on terms which are justifiably different from those given to other people. In addition, since 1996 the DDA has made it illegal to refuse insurance, or charge higher premiums, unless the company can demonstrate statistically higher risks as a direct result of a specific mental health condition. This means that if someone's mental illness has a substantial, adverse and long-term effect on their ability to carry out normal day-to-day activities then they are likely to be covered by the DDA. The Act also covers people who have had a disability in the past.
Walking a tightrope
No one in the industry is aware of any insurer being sued under the DDA for a case connected to a mental health problem - yet there is no reason for the industry to be slack. As Colin Micklewright, head of group IP business development at Canada Life, says there have already been plenty of cases against employers with the biggest claim to date being £400,000. "Employers and intermediaries need to pay attention to the DDA and look at the bigger picture - people need to take it seriously," he warns.
Are insurers walking a tightrope when loading or rejecting someone who is or has suffered from mental health problems? Bright Grey's Edwards does not think so but says that loading someone due to a mental health problem is "lawful discrimination", adding that there is plenty of statistical evidence that can show that someone with mental health conditions is more at risk of self harm or accident and therefore could attract a higher premium.
"No one likes discrimination, either legal or illegal, but it does go to the foundation principles of insurance to be able to charge a fair price for a risk. The consequence of not doing so is spreading the cost across the pool of business and this would attract a higher price. In a market where too few people are protected - an increase in price would not help to increase sales," he says.
Although acknowledging that some people affected by mental illness would pose an increased risk, Toni Borneo, senior policy officer at mental health charity Rethink, slams the way in which many insurers tend to take an unnecessarily conservative approach. "We're sure the loading is sometimes disproportionately high. We know that some providers are able to offer reasonable rates, so there must be a way of balancing risks in a way that is fairer to all parties."
She does not deny there is good practice in the industry, but says: "Our message to the insurance industry is this; it is not inevitable that anybody with a history of mental illness is high risk. People affected should not be simply 'lumped together' as an amorphous, uninsurable group.
"These are individuals, many of whom recover and manage well," Borneo adds. n
