Synopsis: In this article we explore exclusions, in principle, in income protection; in days gone by insurers would view exclusions as a way of offering cover, albeit partial cover. Nowadays in more consumer focused times and following the PPI scandal, advisers generally believe that exclusions are a turn-off to customers and the market has responded.
Date posted: Monday, July 14, 2014
If I had been writing this article a few years ago I would have cited a fairly long list of exclusions that income protection insurers imposed on their policies. When a colleague was involved in developing plans as a re-assurer about thirty years ago, they have explained that what you wouldn’t cover was almost as important to many insurers as what you would!
It is worthwhile to talk about exclusions in principle; in days gone by insurers would view exclusions as a way of offering cover, albeit partial cover. Nowadays in more consumer focused times and following the PPI scandal, advisers generally believe that exclusions are a turn-off to customers and the market has responded.
A few years ago it would not have been uncommon to see the following exclusions on an income protection plan.
Disability due to, or caused by, HIV/AIDS
Normal pregnancy and childbirth
Misuse of alcohol or drugs
Failure to follow medical advice
Residing outside the UK
Now the situation has changed radically and very much for the better as far as consumers are concerned. At the time of writing 8 companies do not impose any standard exclusions for accident or sickness.
There are exclusions imposed by certain companies on things like drug, alcohol or solvent abuse, self-harm or self-inflicted injury and civil commotion. These are because companies believe that they are difficult to cover adequately within the policy.
There is also a likelihood that permanent residence in some parts of the world especially those countries where there has been, or is, civil unrest or which are particularly remote, may be excluded. Companies will publish, within their policy conditions, the list of countries where they do offer unlimited cover and this is worth consulting if you have a client who is likely to reside abroad in future. Apart from the risk of being involved accidentally in conflict which informs much of their thinking, the ability to administer claims effectively, to get access to proper medical surveillance and to attempt to get someone back to work, is considerably harder at a distance. Often requests to extend the geographical limits of the policy are made after the policy is in force and these need to be judged case by case. On one occasion I saw agreement given to a case that was in claim for depression. The claimant was allowed to move from Yorkshire and reside on a remote island off the coast of North-East Africa! It made claim management extraordinarily difficult.
If an income protection plan contains Redundancy Cover (which a number do), most insurers have an initial exclusion period where a claim for unemployment cannot be made. The period varies from 120-180 days and is inserted to guard against anti-selection which is a particular problem with unemployment insurance, as people who believe they are likely to be made redundant are understandably tempted to insure against the risk!
Over the next few articles I will look at traditional exclusions and why they were dropped and the sales story this allows you to give your customers. I will also look at the few that exist around the market and give the underwriting logic for retaining them. It will be a good illustration of a product coming to terms with modern life and trying to shed unnecessary complexity.
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