An income protection (IP) policyholder was left homeless after a claim was declined due to their mental illness, the Money and Mental Health Policy Institute (MMHPI) has told Health & Protection.
The institute added “many” mental health sufferers have told its researchers about facing price increases, exclusions and declines after declaring their condition to secure life and income protection insurance.
As a result, it is calling for the Financial Conduct Authority (FCA) to urgently investigate whether people with mental health problems are being unfairly penalised by insurance providers.
And it wants the regulator to ensure insurance pricing decisions are compliant with key financial regulations and legislation such as the Equality Act 2010.
It is also urging the FCA to set out specific expectations for the industry around how firms can provide fair value for customers with mental health problems, particularly where cover excludes their mental health.
Further action from government was suggested with the posisbility of a scheme similar to Flood Re, along with greater transparency from insurers, but initiatives such as those from the Protection Distributors Group received praise.
Protection insurance industry experts have given differing views about the progress on mental health underwriting throughout the sector.
And the MMHPI is also in the middle of an application to be designated as a super-complainant, which Zurich head of market engagement Peter Hamilton highlighted could create a significant challenge for the industry.
In response to the report, the Association of British Insurers (ABI) said no-one should face a barrier to accessing financial services and highlighted the importance of clear communication and transparency from insurers.
IP claim declined
The institute told Health & Protection one of the most notable experiences it found came from an IP policyholder whose insurer did not pay out a claim for Myalgic Encephalomyelitis (ME) due to their mental health.
ME is a long-term, fluctuating, neurological condition that causes symptoms affecting many body systems, more commonly the nervous and immune systems.
The claimant developed ME meaning they could no longer work, but the unnamed insurer declined the claim which eventually led to the claimant losing their home and being left homeless.
The claim was declined because the insurer stated that it considered any ‘fatigue’ condition to be related to depression and anxiety, rather than related to conditions like post-covid or viral infections.
The institute has been conducting research into the sector – first an in-depth mystery shopping exercise it carried out with 15 travel insurers looking into how different mental health conditions affect prices and cover.
A subsequent study of 292 people with mental health problems found people with such conditions being written off for cover was common right across the insurance sector.
Respondents reported that “eye-wateringly” high premiums were leaving them struggling to afford insurance or going without vital cover which was causing “serious” distress and anxiety for many people, as well as leaving them more exposed to financial harm.
They also pointed out the negative outcomes they experienced have discouraged them from telling insurance providers about their mental health problems in future.
Signposting review and insurer data transparency
Among its recommendations, the institute said the FCA should urgently complete its postponed review of the signposting intervention for travel insurance examining whether people with pre-existing medical conditions were still experiencing poor outcomes.
If there are signs that the intervention has had some successes, the FCA should consider introducing the requirements in other products such as life and income protection, the institute said.
The MMHPI called on insurers to be more transparent on how decisions were made about customers with mental health problems, adding these decisions should be based on up-to-date data which reflects the fact that people can manage and recover from mental health problems.
In particular, it is calling on the insurance industry to take the following actions:
- Use up-to-date and accurate data on the risk that those of us with mental health problems face by funding publicly-available research, updating the questions asked of customers and taking management of conditions and recovery into account.
- Be more transparent about how decisions are made so that customers know what data is being used and how to challenge decisions.
- Increase customer understanding of what is and is not covered in insurance policies (including mental health conditions) and what to do if the premium increases, exclusions are added or they are declined.
- Embed accessibility throughout the customer journey, make it easier to claim and help people struggling with payments.
Flood Re replica for pre-existing conditions
The report also called for more intervention from government, calling for a similar approach to that used for the 2016 introduction of the Flood Re scheme.
This enabled people living in certain homes liable to flooding to access home insurance, having previously been unable to get cover at reasonable prices or at all.
It called on government to start exploring the potential of introducing a similar intervention to help customers with mental health problems, and other pre-existing medical conditions or disabilities, access insurance.
Flood Re works though insurers paying into a central pot that they can then claim from if they pay out to someone covered by the scheme.
The institute said it was likely there was more of an appetite for an intervention in protection insurance rather than travel and the government should explore where this would work best.
Some praise was handed out in the report, with a recommendation that trade bodies do more to improve standards and create more consistency in the market – the Protection Distributors Group claims charter was highlighted as an example of this.
‘Really poor outcomes’
Helen Undy, chief executive of the Money and Mental Health Policy Institute, (pictured) said: “The insurance industry sells peace of mind, but that’s not on offer for many people with mental health problems, who may arguably need it most.
“Across many types of insurance, people with mental health problems are facing really poor outcomes.
“It’s hard to believe that these extortionate premiums accurately reflect the risk to insurers, especially when people who have been able to manage their condition for years are still being charged significantly more.
“There is a real sense among people with mental health problems that they’re not being treated fairly – many even say they feel discriminated against by insurers. Not only is that causing unnecessary distress, it is also leaving people more exposed to the risk of financial harm during a cost of living crisis.
“These insurance firms are still making their pricing decisions behind locked doors – in a way that is almost impossible for researchers, consumers or even politicians to hold to account.
“It’s about time that the regulator took decisive action to show that protecting their commercial interests does not put firms above the law.”
Martin Lewis, founder of the Money and Mental Health Policy Institute charity, added: “The regulator has already taken action to stop existing insurance customers being discriminated against, by having to pay more than new customers.
“So now we’re loudly calling on it to ensure firms obey their duty to consumers with mental health conditions and treat them fairly.”
