On the subject of underwriting at sale, Mr McKenna highlights: “In my view the key issue here is to ensure that there is clear and full disclosure of all material facts.
“Where there is any history of mental illness, or for that matter any other form of illness, if the insurer is provided with a full and frank disclosure at the application stage they will be able to decide if they wish to include cover.
“Underwriting at claims stage doesn’t normally happen in the case of life or critical illness policies unless there has been some form of non-disclosure although it may come in for income protection contracts.”
Mr McKenna points out that the main exception to this is in the group risk market where some insurers provide cover excluding pre-existing conditions and only seek to establish if these exist when a claim is forthcoming.
“My view is that policies with such restrictions should be avoided where possible as giving the client or employee the impression they have cover, when in reality they do not, can lead to very difficult conversations when a claim arises.”
What can go wrong with group claims?
Group benefits fall into three distinct categories:
- Fully underwritten at commencement – where the insurer is provided with individual member details and offers terms accordingly (as per most individual policies).
- Pre-existing exclusion or moratorium cover – where existing conditions are excluded either completely or for a period of time (operates on some healthcare policies and critical illness policies).
- Medical history disregarded – applies to some corporate healthcare policies and for most employees under larger group risk arrangements.
Over the years the corporate market has evolved to offer products with either no medical underwriting or the pre-existing exclusion.
In other words any underwriting that is required takes place at the point of claim rather than the point of inclusion. So the insurer is only medically underwriting those making a claim, rather than the entire workforce.
The negative of this approach is that while costs and administration are lower, which ultimately benefits the arrangement as a whole, there is the potential for a claim to be declined.
“Although this seems harsh on the individual, the employer / insurer should have made perfectly clear in their communications at outset that the pre-existing exclusion applied,” says Paul White, senior consultant at Punter Southall Health & Protection.
“In addition, the individual wouldn’t potentially be left without any cover, just not full cover. So someone who has previously suffered from cancer, or a related condition, may be excluded from this condition, but they will continue to be covered for other conditions."
Mr White continues: “In some cases, the employer, or individual may consider clarity of cover at outset is the most desirable outcome and seek a fully underwritten approach.
"But on the basis of ease of establishing cover, and simplicity of administration and reduced costs, employers are likely to look for policies with no medical underwriting or underwriting at point of claim.”
