Thoughts on FCA report on Access to Insurance

I have read the FCA report based on their Call for Input around Access To Insurance with interest today having attended the launch, responded to the report and had a follow up meeting with the FCA around this vital subject.

The original call for input was primarily based around travel insurance and cancer, and the final report reflects this.  Given some of the examples given from individuals this is understandable and appropriate.  If this difficult area is improved then it is likely that the “read-across” to other areas will come soon.

There is a peculiar piece where in 3.16 and 3.17 it summarises some of the issues that may exist in securing access to protection insurance for CI and IP in particular for non-standard lives. It then explicitly says: “We discuss how we intend to address these areas of read-across to other protection products in our ‘Next Steps’ section” – but then doesn’t really seem to do that. This is disappointing given how distinct different parts of the insurance industry are and the risk that without specific mention people will focus on more pressing issues in their own sectors.

Notwithstanding this I think this is a balanced report from the FCA with firm but healthy reminders to companies of their duties under the Equalities Act and other legislation. There is a clear and appropriate direction of travel here to ensure that the industry needs to work together to ensure people have access to insurance.  The short shrift given to concerns that people who spent lots of money advertising but then have a very strict underwriting category may have no incentive to help out disappointed customers is a good way of taking this beyond nice words and into the real world.

As described in my initial response I don’t like the phrase “signposting” but I do appreciate what they’re trying to do with this given the detailed examples given.  I also think the concept of a “warm decline” has much to be said for it.  This has a direct read across to protection insurance for insurers and advisers alike who can be notoriously reluctant to explain the reasons for declining, and very rarely offer proactive solutions for alternative cover with them or other providers.

Last but not least – there is one laugh/cry riddle like piece of insurance speak that has crept into the document – at 3.13 the report says insurers say “They based decisions on the risk that a condition presents, rather than the condition itself”.  If this is the level of explanation and transparency that insurers give the FCA it’s no wonder that individual customers (and this underwriter) feel confused!


Alea’s original Response on FCA Call to Input:

Personal background: I set up my own consultancy business 2 years ago.  I am focussed on making it easy to buy (Life, CI and IP) insurance using my background in underwriting and product design.  I have worked with insurers, distributors and tech companies to try and improve processes and philosophy to enable this to happen.

Prior to this I was Head of Life and Health Underwriting for the UK and Ireland for Swiss Re.  In this role I had ultimate responsibility for the ratings within the reinsurance underwriting manual used by the majority of the UK market.  I also chaired the 2014 ABI SoBP on CI and worked with Macmillan on some of their excellent work in and after 2012 engaging with the protection market to understand, challenge and improve areas of friction.

Industry background: For Life, Critical Illness and Income Protection UK insurers philosophies are largely based on global reinsurers manuals.  These reinsurers take c.90% of the financial risk for these products and as such it is their philosophy that is largely applied by insurers with a small amount of tailoring for their target market or based on their claims experience.

These answers may not always exactly correspond to the intention of the questions asked, but fit as best I can the travel focus of these questions.

Q1 – Ratings for medical histories are produced with reference to global medical research, the (re)insurers claims experience and an analysis of future trends.

Q5 – Cancer is one of the most complex medical conditions to underwrite, and the rating approach reflects this.  Typically a decision would be primarily based on: the site of the cancer, the grade/stage of the cancer, time since the cancer has gone into remission and if there have been any recurrences.  A typical rating approach for stage II or III cancer would see cover postponed (i.e. not offered) for 3-5 years after remission and thereafter a rating applied that would reduce for each year since remission without recurrence.

Cancer is an unusual medical condition in that the ratings are generally applied on a per mille basis rather than an extra mortality basis – so they are a % of the sum assured rather than of the premium due to the prognosis for those with cancer being similar irrespective of age (and therefore the original standard rates premium).  This means that some of those extra premiums can seem very high to younger lives and increase the price a healthy 30 year was going to pay by well over 10x.

Q6 – All decisions made are supported by medical research for the category into which the individual is within.

Q7 – Information to consumers about the reason for their decision is not very well delivered at present.  There are a number of players in this situation – the consumer, their GP, (often) a financial adviser and the insurance company underwriter.  Depending on where information has been obtained from there are understandably data protection issues with how the information for the decision is given back.  Nevertheless more information could be given more clearly to the consumer for them to understand why the decision has been made and assess whether they believe the decision is fair or needs to be challenged.

Q15 – I struggle with the focus on signposting in many of the earlier questions.  As an analogy – I would only ever look at a signpost if I’m lost, and if my sat nav wasn’t working!  We should be able to design something that stops people needing signposts at all, but instead means they don’t get lost in the first place.

In practical terms for insurance I think one solution is a common application form and detailed medical questions accessible to and used by most insurers and consumers that allows people to input answers once and receive quotes from multiple insurers with different risk appetites. If specialist providers appear on these platforms then there is the potential both for some to specialise in certain conditions e.g. cancer and more broadly to highlight apparently discriminatory / unjustified decisions by others.

Q17 – From an on boarding perspective it has historically cost more to underwrite people with cancer and they take out cover less often than people without a significant medical history.  This balance is one of the main reasons that most insurers restrict the maximum premiums they offer to 5x the standard premium for life and 2.5x the standard premium for Critical Illness or Income Protection. Note the other reason not to offer cover is the uncertainty that lies around the prognosis for some though not all of these lives as the numbers reduce.

Reducing the cost to underwrite and increasing the % who you have spent time and money underwriting that take out the cover therefore become important from a purely economic perspective.

To do this you need to find ways to obtain required medical information efficiently. Is it reasonable to ask and rely on the consumer exactly what TNM score their cancer was, what treatment they had and when it stopped? Or how do we get that information in an efficient way from a GP?

Giving a realistic indication of the likely premium before incurring costs gathering medical evidence may allow insurers to adopt a broader approach to maximum ratings. If a customer gives a commitment to buy if the premium is within the expected parameters then the insurer is more motivated to go the extra mile to get the evidence.

Q19 – I think there is a risk that innovation in protection is largely focussed on processes and efficiency for the majority.  This can mean that processes and philosophy at best look like they did 20 years ago and at worst get thrown away altogether as what’s best for 90% overrides what’s needed for 10%.  I therefore think challenges like this and encouragement and financial support for people looking to use new ways to offer terms to more people rather than make things more efficient are important.

Personal conclusions:

I believe that the underlying approach taken to risk assessment for protection conditions is carefully developed using appropriate methodology and does not seek to unfairly exclude or profiteer from specific groups of people.  The protection industry employs experienced Chief Medical Officers, underwriters and actuaries who have a high amount of medical knowledge that is applied to make consistent and fair decisions on these individuals.

However there are some areas where there may be scope to ensure this continues and in some cases more cover is enabled – three examples could be:

  1. Guidance as to how often it is reasonable to review ratings. Without this there is a risk that insurers will focus on conditions where experience is worsening before looking at conditions where experience is improving.  It is not practical to respond immediately to every medical report that is written but there is a need to understand what is considered to be fair to all involved.  This requirement should then be publically shared – i.e. “we last reviewed this condition in the last year/3 years/5 years/10 years/more than 10 years ago.”
  2. Encouraging sharing of medical information in a safe but efficient way from the consumer to the insurer and back. Ensuring that medical information can be given to insurers efficiently should enable them to be more confident in making decisions on more individuals.  Equally obliging insurers to give reasons for any extra rating applied directly to the customer whenever the information has come from them seems fair and important.
  3. Questioning whether the current maximum ratings offered by the mass market are sufficient to meet the needs of the population.  For a 30 year old applying for 20 years of cover for £100,000 the standard rates price is less than £10 a month, and so most insurers wouldn’t offer a premium of £50 a month for medical conditions other than cancer. This is in spite of the fact that this is potentially a lower risk (and monthly premium) than a healthy 55 year old applying for a 20 year term that they would routinely offer cover to.

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