In the line of fire

The terrorist attacks in the US and subsequent military activities in Afghanistan have raised questions over protection. The concern relates to what extent individuals are covered in such situations, and how advisers can reassure their clients.

While what is happening following the attacks on the World Trade Center has focused attention on how individuals can protect themselves and their finances, the principle of insurance and its practice is unchanged by recent events. Exclusion clauses have always applied to life, critical illness (CI) and income protection (IP) policies and the focus we are seeing at the moment is merely a heightened awareness of when and how they apply. Whereas previously most individuals would not have been concerned about a war exclusion clause in a policy, some are wondering about it now.

The careful path for the adviser to take is in encouraging individuals to take out cover before it becomes difficult to do so. This does not mean that for the majority it will be, but for those with certain occupations it may be.

For the majority of clients a life policy application will be as accepted as before. For those individuals already covered there is little for them to worry about.

'We can not rescind on cover, even if there is a change in health and occupation,' says Julie Hopkins, chief underwriter at Hannover Re. 'If we issue a life policy, provided we have all the information when the life goes on risk, the cover will remain.'

In good faith

The principle of reasonableness in insurance is underlined by Russ Whitworth, chief underwriter at Legal & General. 'Take, for example, somebody who took out a life assurance policy five years ago ' and this week decided to go to Afghanistan. If they had taken that policy out in good faith with no intention of going to Afghanistan we would still cover them,' he says.

As for those without cover, it would be an extreme case if a client could not get cover. Hopkins says: 'Nobody excludes anything from life cover. As an insurer or a reinsurer you either rate for it, or you do not cover it. If you can price it you do so, if you cannot then you do not cover.'

Under CI and IP policies the situation is different than under life assurance. Hopkins says: 'Many disability covers have war risk exclusions. The issue is one of data. While we have a fair idea of who may die in a situation, there is limited information on who may get injured or develop a disease ' so it is not unusual to see if there is an occupational risk.'

Reaching a decision

While the underwriting decision to insure must be based on incidence data and factors like occupational risk, many other variables come into play when a claim is being assessed.

Whitworth agrees: 'Most CI and IP policies will have exclusions, but it does not mean the insurance company wants to enforce those exclusions. There are massive amounts of individual considerations to be made.'

However, higher premium costs and exclusion clauses apply to CI and IP, whether we are talking about the insured taking a bus to the office or a tank to the Middle East. These insurances are rated and carry exclusions because there is more chance of someone becoming ill and not being able to work than dying.

'In terms of CI, the real concern is disability risk,' says Nick Kirwan, head of protection product development and marketing at Scottish Provident. 'War zones do not bring on heart disease ' total permanent disability is the only relevant issue.'

Where war exclusions could apply are for claims for events such as blindness, paraplegia, loss of limbs or severe burns. But different companies have different codicils and it is up to the individual and their adviser to study these possible exclusions if they feel themselves to be at risk.

Whitworth says: 'All insurers ask the same questions about travelling abroad and occupations because this could include the likelihood of increased risk. For life assurance the majority of occupations would never necessitate an increase in premiums ' most occupations do not increase the chance of death. CI is rated on occupation and premiums applied accordingly.'

For CI underwriting it also depends on where an individual is travelling or where they are when they make a claim.

'It is common practice to restrict geographical areas that apply to policies for disability type benefits,' says Kirwan, for the reason that can be difficult to get reliable medical evidence from abroad. He cites the example of an individual claiming from East Africa, his medical evidence provided by the best available person at the time ' a vet.

'This highlights the problem you can have,' he adds. 'We therefore have a repatriation clause for the purposes of giving medical evidence and of course for armed personnel this fits well because that is just what they do. If something happens to one of their personnel they get them back home again as soon as possible.'

While there may be a standing industry wording as to what constitutes war ' for example, invasion or hostilities, whether war is declared or not, civil war, rebellion, revolution or taking part in a riot or civil commotion, not all providers use the suggested wording. Some providers, for example, have tried to say that war exclusion will apply to loss of limb. Scottish Provident made the decision some time ago to drop the blanket war exclusion clause and instead only apply it to the military.

What this means, says Kirwan, is that if an individual was blown up by a bomb in London, the war exclusion would not apply. 'But the other extreme is that in the military this policy would exclude,' he says.

Armed forces

The armed forces are a fairly obvious grouping for the application of war exclusion clauses. Legal & General is one insurer who has had to close its doors to new business from armed forces personnel under posting orders.

Scottish Provident, however, has yet to clarify its view. 'We have not made any blanket statements, but are considering what we are doing,' says Kirwan. 'Our position on life cover is that we are talking to reinsurers, but have made no decisions.'

For those in the forces with life cover this will remain, for as long as premiums are being met, cover cannot be taken away.

Hannover Re is one reinsurer currently providing cover for the armed forces. 'We would not want to cover all the armed forces,' says Hopkins. 'But for our own directly-insured clients we have not withdrawn cover.

'We did not exclude for the Gulf war, we offered an extra loading. Our stance is currently that all armed forces could be under orders, only if they were definitely under orders would we charge a war premium.'

Reinsurers have had to take certain steps with regard to war cover. They have been caught out in the past, as service people have been sent away and then had to cancel the policy on return. To insure against this loss some reinsurers are charging up-front for war premiums or restricting cover to mortgages.

Some forces occupations will warrant premium loading whether or not they are involved in a conflict situation, for example, jet pilots or divers. In these situations and where a war premium is applied, the Government will pick up 90% of the excess, up to £130,000.

There is certainly a recognition on the part of the Ministry of Defence and the Government that they are sending people off to dangerous places. But when it comes to the individual service person taking out life cover, the decision is theirs in the same way as it is for a civilian.

Paul Sykes, press spokesman for the Ministry of Defence, says: 'If a service person dies as a result of their service, they are eligible for various pension benefits, but life assurance is up to the individual. It is the responsibility of the individual to decide what they want.'

The armed forces are a particularly obvious occupation to attract loading from insurers, but there are other occupations which signal warning bells for insurers.

'Journalists, for example, are different ' they do things differently to other people, they do things we can not quantify,' says Hopkins.

'Other high risk occupations would be aid workers and doctors doing humanitarian work ' we want to cover in these cases as much as we can because we appreciate the good work they do,' she adds.

It can seem that nothing is straightforward in the maze of cover, exclusions and circumstances, prompting a fear that an insurer could withhold cover.

Colin Jackson, director of Baronworth Investment Services, warns: 'You can not generalise across the industry or across providers when it comes to cover. People are concerned that in an act of war or terrorism, does this give the insurer a get out? If you go with some organisations you may not be covered ' you must look at your policy.'

The consensus among insurers is that exclusions should be interpreted reasonably. 'Exclusions are not to be used against the innocent bystander,' says Kirwan.

Honesty pays

However, the individual seeking insurance has a responsibility to declare everything, which may affect their risk status. Rosalind Pearson, research and planning manager, personal finance at Swiss Life, says: 'With any underwriting process the more honest the individual is upfront, the fewer problems there are at claim stage. After that, the principles of insurance apply that as an insurer you take on the risk when you underwrite the business.'

As reinsurers and insurers hold a watching brief on how they must consider new proposals in the light of world events, for the majority of people the need for cover is no greater nor less than it was and the security of cover no less than it was.

It would be questionable for advisers to rush to every underinsured and every non-insured client waving a picture of the World Trade Center in one hand and a life assurance proposal to sign in the other.

But sensitivity does not change the fact that someone will have died in a terrorist attack or a war without having life assurance. And someone will have had a heart attack, been run over by a bus or died peacefully in their sleep. All most of us can actively do at any time is protect our dependants in the event of our death or disability.