Full steam ahead

The Government is committed to ensuring disabled people have access to the goods, services and facilities that other people take for granted. To that end, the first two phases of the Disability Discrimination Act (DDA) have been in effect since 2 December 1996 and 1 October 1999 respectively.

Service providers, including insurers, have a duty to take all reasonable steps to change any practice, procedure or policy that makes it impossible or unreasonably difficult for a disabled person to use their services. For insurers specifically, this means being able to take out insurance.

Some 18 months ago, the Association of British Insurers (ABI) established the Disability Discrimination Act Working Party. The Working Party drew its members from leading players in the life industry and called on the experience of leading disability action groups, including the RNIB and MIND, throughout the drafting of the guide. The completed work, A Life and Disability Insurer's Guide to the Disability Discrimination Act 1995, has some pretty heavy hitters behind it too.

Maria Eagle, the disability minister, and Mary Francis, director general of the ABI, both endorsed the guide at its launch in London in September.

On the face of it, the guide should have no practical impact on the approach life offices take when underwriting cover for people with disabilities. Good practice already dictates that you should always be able to justify any underwriting decisions taken, like applying special terms.

The sad truth is, however, that there will be a minority of offices who may have selectively priced contracts to make them unattractive to people with disabilities, or worse still, refuse to offer any cover. Until the law came into effect, those who had been discriminated against in this way had no recourse ' but not anymore. What was poor practice is now unlawful practice and carries the full penalty of the law with it.

The basic principle behind the legislation, which is echoed throughout the guide, is that insurers should offer people with disabilities the same cover and on the same terms as non-disabled people wherever possible. The Act has not yet been tested in law, so we cannot say for sure what its impact will be on underwriting practice.

However, it is now explicit that insurers should only offer less favourable terms or, as a last resort decline cover completely, if there is a lawful reason, based on relevant and reliable data, to do so. In this context, 'less favourable terms' includes charging a higher premium or offering less cover by applying an exclusion to the policy.

Value for everyone

Throughout the consultation and drafting of the guide, the Working Party recognised that if the guidance was to be of real value to both insurers and disabled people taking out insurance, it had to do two things.

First, it clearly needed to be a practical guide. To be practical, it needed to answer the more complex questions from underwriters about practical situations that were coming up where there was no other guidance. So right from the start, we were determined not to brush the more complex issues under the carpet. Rather, we made it our business to find positive solutions to these points.

But even more important than that, the finished work had to address the concerns of people with disabilities. To do this we had to talk to the people and organisations that could tell us about these concerns. We knew we needed help from people prepared to work with us to find solutions that would be both practical for insurers and of real value to people with disabilities.

A big task

With almost one in 10 people in the population meeting the definition of disability in the DDA insurers should think long and hard about how they will underwrite cover for such a large and influential segment of the population. This group is estimated to spend £40m per year and the guide should help insurers attract custom from this group. Smart life offices are already looking to capture a share of this by providing products that offer value for money for everything from simple life cover through to cover for heart attacks and more serious conditions.

It is worth re-emphasising that what follows is, to a large extent, an exposition of good underwriting practice, which already exists in the industry. For example, it is accepted good practice to have a documented underwriting philosophy and claims process which:

• Forms the basis of your practices and processes.

• You can use to train and guide new or inexperienced staff.

• Can be benchmarked against industry practices.

• Can be used as a reference point to ensure you use best industry practice throughout your underwriting practices and processes.

With the advent of the DDA, underwriters should now document the importance of the Act and its impact on underwriting practices and claims management processes. This should include the details of the procedure for complaints and appeals.

The underwriting philosophy will be critical when justifying underwriting decisions and insurers making an adverse underwriting decision must record on the underwriting file how that decision was reached.

There are a number of special rules which affect insurance and where you can treat a person with disabilities differently from the way you would treat others. Less favourable treatment is only 'deemed to be justified' if:

• it is in connection with the insurance business carried out.

• it is based on information that is relevant to the assessment of the risk.

• the information is from a reliable source.

• the treatment is reasonable having regard to the information relied on and any other relevant factors.

Underwriters may propose less favourable terms by declining or postponing an application, or by applying special terms (for example charging a higher premium and/or applying an exclusion) only if all four of these conditions apply.

To that end underwriters must not rely on assumptions, stereotypes or generalisations about people with disabilities. All decisions must be based on relevant information or data available at the time which will form the basis of the underwriting process. This includes actuarial or statistical data, medical research information and medical reports about an individual.

Keeping informed

Good insurers regularly review their underwriting guide to ensure it is based on reliable, up-to-date information that it is reasonable for its underwriters to rely on. The chief medical officer (CMO) may be required to help interpret medical information to assist in making an accurate underwriting assessment. It may be that the opinion and advice of a CMO alone is not sufficient and in some cases, underwriters will seek advice from a medical specialist in the appropriate discipline. The examples taken from the guide show how an application should be treated to ensure compliance with the DDA.

In case study one, a factor that may influence the decision may be the deferred period applied for. This emphasises the importance of taking individual circumstances into account. Another typical example of underwriting practice by life offices is to remove conditions and apply an exclusion from the cover on offer. A robust underwriting assessment would also take into account the possibility of offering full cover with an extra premium. The DDA requires that when a life office is unable to offer full cover for, say critical illness, even with an extra premium, cover should be offered pro-actively subject to an appropriate exclusion as an alternative to declining cover wherever possible.

In case study two, the man applying may have had testicular cancer four years ago with no evidence of recurrence. In this situation the underwriter may make the exclusion above, but allow all remaining critical illness cover at standard rates. It is ultimately the individual's decision on whether to proceed with the cover, even though the normal cover is reduced.

Finally, when policies are re-underwritten insurers must apply the same considerations about the DDA to them if for example, there is an increase to the amount of cover or if the policy is restarted after a lapse. When an insurer reviews terms for an individual policy taken out before the DDA came into force, the DDA applies to the review and to the policy thereafter with the following exceptions:

• The DDA does not allow any policyholder that took out a policy before December 1996 to ask companies to review policy terms according to the provisions of the DDA, unless the policy itself gives the policyholder the right to invoke a review

• The Act does not apply to premium reviews that apply to all policyholders, for example, a change to the mortality rates that applies to all policyholders or the periodic reviews that apply to many types of unit-linked policies when the individual policies reach their review date.

This covers some of the main aspects of the DDA and how it affects underwriting processes and procedures for offices selling critical illness and protection products. However, it is not an exhaustive account of the impact of the law on the underwriting of these contracts which will only become apparent through evolving best practice and even case law.

The guide itself, which is available via the ABI website at www.abi.org.uk, is a useful first step for insurers to ensure they not only comply with the law, but also highlights the commercial advantages in making their products available to the 8.5 million people in the UK with disabilities. That is a section of the population that insurers ignore at their peril.