Customers are fearful about being charged higher premiums for fully disclosing lifestyle habits or m...
Customers are fearful about being charged higher premiums for fully disclosing lifestyle habits or minor medical ailments, according to research from Axa. If this is increasing the likelihood of non-disclosure, what can be done to assuage this perception?
Dale Tranter, protection research manager, Sesame
Clients need to be convinced that, as long as they disclose fully and truthfully, they will be treated fairly.
Both the carrot and the stick approach are valid here. Firstly, the incentive: the rise of tele-underwriting in recent years has led to fuller disclosure which is already resulting in a reduction of the number of claims declined.
Companies like Axa have real life examples where tele-underwriters have obtained sufficient information to make a more generous underwriting decision than they would have done a few years ago when confronted with only limited information on a paper application form. If clients are given examples of cases where proposers have had minor heart attacks or cancers but successfully put the event behind them and retained ordinary rates then they will be less likely to take a gamble on not disclosing.
Disclosure leads to a better evaluation of risk, a hopefully lower premium and an increased chance of claims being paid.
The stick approach also holds: while the new Association of British Insurers (ABI) approach on non-disclosure is more generous than previous regimes, clients still need to be made aware that failure to fully disclose may lead to the insurer not paying out, meaning the original cheaper premium obtained would have been a false economy.
Graham Harvey, Axa
The Axa research found that 75% of consumers wrongly believed they would be charged more if they revealed minor medical and lifestyle facts on their life insurance application.
These included a history of raised blood pressure now well controlled on treatment, abuse of a single drug over five years ago, or back and joint aches. None of these in isolation would increase life insurance premiums.
Such myths can mean people non-disclose to try to avoid being charged more. This creates a vicious circle in that by trying to save money, they lose out if their claim is paid only in part or not at all.
Axa carried out the research to highlight that many consumer preconceptions about how insurance works are myths and to emphasise the importance of full disclosure.
Advisers should stress why it is vital to fully disclose, and insurers should offer services such as full tele-underwriting to make the disclosure process as straightforward as possible for the customer.
Tele-underwriting enables customers to prepare in advance for medical questions, the answers to which can be difficult to remember. Also, speaking to a skilled but remote tele-underwriter, preserves a sense of help and anonymity which is conducive to full disclosure of personal information.
This reduces non-disclosure to just 1.23%, compared with 5.78% of paper applications.
Peter Chadborn, CBK Colchester
This statement is not in keeping with my personal experience which has seen a logical perception from clients that non-disclosure results in a claim not being paid. There can sometimes be a cynical perception that an insurer will look for opportunities not to pay a claim but these views are in the minority.
The largest responsibility for addressing the perceptions from Axa's findings lies with the adviser at point-of-sale. Consumers need to be educated about the whole process in order to manage their expectations. This should apply from the very first meeting, all the way through the application process and include a detailed discussion about the importance of full disclosure and how an insurer assesses and prices risk.
Those who do not expect to pay more for adverse health or lifestyle habits clearly do not understand the nature of insurance and this needs to be addressed to help the process.
Similar to the experience of those life offices that have adopted tele-underwriting, CBK Colchester has adapted its processes to encourage disclosure. Advice has been separated from the application process by leaving the client to complete the application form in their own time allowing them to recall any health issues and document accordingly. In doing so, CBK has seen no reduction in take-up of protection business, proving that this advice process is effective.
Ian Smart, technical product manager, Bright Grey
The basic principle of pricing policies is that the amount charged is proportionate to the risk. If someone is twice as likely to claim, they will essentially be charged double the basic premium. From a customer perspective, this may be difficult to swallow, particularly with protection where a standard premium is initially quoted, and it is only once the application has been assessed that anything is added. But this happens whatever type of insurance is being taken out. One solution may be to only provide quotes after a full assessment of the client's situation - the same way that motor insurers ask for all information affecting the upfront charge. Would customers be prepared to give this and perhaps a medical before getting a quote? Probably not.
The majority of applications are accepted on standard rates and the majority of claims are paid. Deliberately not telling the insurance company something that will affect how much they will charge is a false economy. Although the premiums may be less, it means paying into a policy on which a claim will almost certainly not be paid so it is better to be honest and adjust the level of cover. Providers and advisers need to get better at explaining extra premiums and setting better expectations with the client so that it does not come as a shock when the application is submitted.
