Your average client probably buys term assurance to provide long-term security - to protect their ho...
Your average client probably buys term assurance to provide long-term security - to protect their home, family, or business from the financial consequences of serious illness or death. Indeed, there are numerous life offices battling for this business.
But every now and then a client will walk through your door with slightly more unusual requirements that cannot be met by a traditional life office. They may have been sick, or perhaps require cover for a very short term. Alternatively, they may be a very high net worth client.
Traditional life offices focusing on mainstream clients with mainstream requirements are likely to reject these niche cases. But before you show the client the door, it is worth checking out what the Lloyd's syndicates are able to offer.
A useful role
Dale Tranter, protection researcher at Countrywide, says that Lloyd's syndicates play a useful role in the protection market. "Their prime use is as a niche provider - for example if you need immediate cover, are participating in a hazardous activity, or visiting a part of the world not covered by most insurers. They will also consider less healthy clients that may have previously been turned down by another insurer."
Offering a maximum term of 10 years, Lloyd's syndicates specialise in short-term cover and have teams of underwriters specialising in short-term risk, enabling customers to purchase cover from anything from one day to 10 years.
Thanks to this specialist underwriting, syndicates can also extend cover to those with impaired lives. It is difficult to make generalisations about what they will or will not cover, but as a rule, they are likely to be considerably more open-minded than traditional life offices when an application from a less healthy applicant lands on their desk.
Cathy Toomey, life underwriter at Lloyd's syndicate Kiln Life, says each case is viewed on an individual basis. "Somebody who has recovered from cancer could be desperate for cover if they have just taken out a mortgage and they are still in the postponement period from a traditional insurer - but we review each case on its own merits. If we think it is a good risk we will offer terms, although it will be expensive."
Kevin Tugwell, new business underwriter at Cassidy Davis, says syndicates are able to do this because the nature of a one year risk is very different to that of a 25-year risk. He says: "If an applicant had a recently diagnosed tumour we would not even consider it for long-term cover - but we would consider it for a year before re-underwriting it."
Even though Lloyd's syndicates might be more flexible in this field, Toomey stresses that there is a limit to the risk they will take on. "We will consider people who have been ill but they need to be recovering," she says. The disease in question will also be important and underwriters will be less lenient on conditions that pose an ongoing threat. Toomey says: "While we look at cancer, we might not offer terms to someone with advanced heart disease as this is a condition that tends to get worse over time."
However, when cover is offered to individuals with impaired health the insurer may not be willing to offer the maximum term. "In these situations we would usually only offer cover for one, maybe two years," says Toomey.
Although this may appear a bad deal, as most applicants seek the security of longer term cover, Toomey says this can be beneficial. She says: "We need to review their cover at the end of this period - but people do get better and by the end of the term they may be a better risk, so it is fair to both parties." As a result, if a policyholder shows improvements when they are re-underwritten they may be able to negotiate new cover at a reduced rate.
Surgery
Some syndicates, such as Cassidy Davis, will also offer cover to people going under the surgeon's knife. Tugwell says: "We can look at people going into hospital for operations and are typically asked to cover surgery for varicose veins, hip replacements and gall bladder removal."
He adds that more serious operations such as open-heart surgery can be covered, but because this is such a big risk the cost is usually prohibitive.
Lloyd's syndicates are also frequently used to cover people participating in hazardous activities such as diving, parachute jumps or abseiling. Likewise cover can be offered to individuals that frequently travel to dangerous areas of the world, such as war-zones since standard insurers may be wary of taking on such a risk.
Darryl Meech, senior deputy underwriter at Crowe Life, says that IFAs with overseas clients should also be aware of the role Lloyd's life syndicates can play in the international market. "We do not just offer cover to UK expatriates but third country nationals too, and we can write the business so that contributions and benefits are in a foreign currency," he says.
While it is impaired lives cover and hazardous pursuits cover for which the Lloyd's syndicates are best known, they can also be useful in other areas.
Bridging loans
Toomey says that syndicates get frequent requests for bridging loan cover, particularly in the business market. "Businesses purchasing a nursing home or hotel, for example, may need to protect a bridging loan if they have not sold their previous premises." With sums assured being high in this market, bridging loan cover can be an excellent opportunity for IFAs to tap into.
If you have a particularly high net worth client whose sum assured may exceed the limits set by traditional insurers, it may also be worth approaching a Lloyd's syndicate. This is because syndicates are able to pool their resources enabling them to meet the requirements of the client. Toomey says: "An IFA can approach us with one risk, perhaps worth several million, and with the combined capacity of up to six syndicates we can cover that risk in the Lloyd's market with just one policy," she says.
Lloyd's syndicates are also good at providing stop-gap cover, for example during the underwriting of standard, long-term cover. Toomey says: "If a borrower is taking out cover for a 25-year mortgage they may require full underwriting but need immediate cover. We can offer three months' cover while they wait to be underwritten by a different insurer."
Another need for stop-gap cover arises when people change jobs, says Meech. "When people are between jobs they can lose out on benefits provided by their old employer and they may have to wait up to three months before they qualify for cover with their new employer."
IFAs using the Lloyd's market can also expect a flexible and fast service, says Philip Wolski, managing director at Wren Life. He says: "The Lloyd's syndicates are renowned for flexible underwriting, but the only way we can do this is by putting the underwriter at the front-end on the phone. This is a big attraction for IFAs as they are able to talk direct with the decision-maker." This can save the IFA a lot of time and hassle. Wolski cites one example of a group of trekkers seeking life cover because they were travelling to Mount Everest.
He says: "The IFA concerned rang 30 companies and was declined by all of them. A great number put him to the trouble of completing an application form. As it turned out they were only trekking to base camp and we were able to offer them standard rates."
The speed at which cases can be put on risk is another attraction for IFAs. The IFA simply needs to fax the application form over to the syndicate and the cover can often be put on risk within an hour.
Tugwell says: "There was a case where we spoke to an IFA at 9am who had a client that was having his gall bladder removed at 11am. Life cover was arranged and the policy went on risk at 9.15."
As the term market becomes increasingly competitive, insurers are increasing the flexibility within their product ranges, but there will always be niche clients with protection needs that can not be catered for by traditional insurers. It is certainly worth investigating what cover can be found on the Lloyd's market and use this information to target the very specific and unique needs of your clients.
Rachel Williams is deputy editor
