Misrepresentation is on the rise in income protection leading to calls for simpler application forms and changes to underwriting, hears Abigail Montrose.
The income protection (IP) market has been growing. However, worryingly this has been accompanied by an increase in misrepresentation and non-disclosure by customers.
The panel at Health & Protection’s Individual Protection Report roundtable at the House of Lords highlighted that this misrepresentation is causing issues in underwriting and claims processes.
For example, they noted there are a range of issues around ex-smoker rates, weight loss medications, mental health and add-on services.
These are adding complexity to the underwriting process said Maria McGarvey, senior underwriter at Gen Re.
“The industry is reacting to the changes; we’ve heard about them and we’ve talked about them, but we are data driven and we always look back with data, so we don’t necessarily have a good understanding of people’s behaviour until it’s in the data,” she said.
“With weight loss drugs, we know they are here and they are here to stay even with the price hikes, but is usage being disclosed or not? We’re a little in the dark about this,” she said.
Underwriting evolves
Helen Croft, head of life and health underwriting UK and Ireland at Scor, pointed out that while underwriters can update risk profiles, this is not the only challenge they are facing.
“If there is something that changes the risk profile, we have to react and adapt to that by putting something into the underwriting process,” she said.
“The biggest challenge we’ve got is the people who are going into manual underwriting and then the conversion of that group.”
Stephanie Charman, CEO of the Association of Mortgage Intermediaries, agreed but thought this could provide more data.
“You get to a point where the data actually shows you that more of those people could move into straight through,” she said.
Croft pointed out that as soon as someone drops out of that straight through process, the conversion drops.
“You’re losing people out of the funnel straight away,” she continued.
“We’ve got to focus on getting people the insurance they want so that the data shows that straight through processing is the best way to do that.
“There’s an increase in misrepresentation generally as a result of non-disclosure and this is another part of the underwriting dynamic at the moment and everybody’s paying for this. So the question is, if that’s increasing, how do we get better at identifying it?” she said.
Complicated application forms
One area identified by the panel where misrepresentation can creep in was application forms, with these seen as too complicated.
LifeSearch CEO Debbie Kennedy highlighted the confusion around smoking rates as a key example.
“Now we’re slicing smokers in several different ways to try and price differently, but often people will have smoked for a bit, then stopped, then started again and they might have vaped for a bit and so on,” she said.
“It’s like we’re getting a little too clever with the pricing but it’s not translating into how smoking has or is affecting the customer.
“So I’m not surprised misrepresentation is going up – application forms are sometimes like a memory test and I’m not surprised people sometimes miss some things.”
GP report dilemmas
Another issue raised was GP reports. The waiting time on these could cause the loss of a sale or put advisers off selling the products, thought Roy McLoughlin, board member of the Protection Distributors Group.
“Delays in getting GP reports are a big problem; we’re now being told by lots of surgeries they won’t even look at these for 31 days,” he said.
“Then the insurer might take 40 days before they look at the report so its 70 days before these are dealt with and then other tests and information may be required.
“A couple of things can then happen. A lot of people will just fall out of that process and there is also the worry that a lot of wealth advisers and mortgage advisers will start hearing these stories and just decide to avoid this market,” he added.
Despite the problems there were some advantages to GP reports, pointed out Ken Maxwell, director of John Lamb Hill Oldridge.
“I would love to do away with the GP report because of the time it takes, but at the same time, clients may forget or even fib about conditions or certain things they have done in the past,” he said.
“Our clients have a call with our underwriter as a first stage and we then do pre-underwriting. There are cases where we find the client hasn’t disclosed something, perhaps because they’ve forgotten, but this is in the GP report. We then include this in the application because if we didn’t this might be seen as non-disclosure,” he added.