It never ceases to amaze me that, as an industry, we haven’t taken steps to outlaw the practice of temporary underwriting.
This is where the insurer does not have sufficient information to properly underwrite the policy, but issues it anyway with a temporary wording.
The wording can take various forms – a blanket exclusion on pre-existing conditions, a note to say that the underwriting has yet to be completed, or a new moratorium.
The result for the client is the same, though: a lack of clarity over their terms and a possible difficulty in claiming and/or moving to a new insurer at some point in the future.
Clients oblivious
Over the years we have encountered several clients stuck on temporary underwriting that has been allowed to persist through several renewals.
The biggest problem with temporary underwriting is that, once the policy is issued, it is forgotten about – the onus is on the client to repair the situation, and they are generally oblivious.
It does not help that many insurers do not allow brokers to see underwriting terms, due to concerns over data protection.
Leaving aside the fact that a moratorium start date, for example, is not a piece of personal or sensitive data, this means that even a diligent broker can allow a policy to go through renewal with temporary underwriting.
It is important, then, to do it once and do it right – for brokers to ensure that previous certificates are submitted at the time of application, and for insurers to chase any missing information at the time and not issue the policy until the underwriting has been completed.
Switching issues
We once advised a client who had temporary underwriting on a group-leaver policy that dated back to when his then-employer changed insurers ten years prior.
The previous insurer had ceased trading so the situation seemed irreparable, but we were able to find a sympathetic insurer willing to accept the client on a switch with no exclusions.
Had the client needed to claim for a condition that pre-dated the blanket exclusion, though, the situation would have become very messy.
Perhaps the most invidious form of temporary underwriting is the application of a new moratorium on a switch case.
Although intended as a temporary state of affairs, the underwriting appears to be complete so is unlikely to be queried once the policy is set up. Thus, the insurer gets to write a piece of switch business with none of the associated risk.
Moral duty
The real problem comes when the client looks to change insurers again and the incorrect moratorium is transferred to a new insurer.
At this point the client’s underwriting is crystallised and the original terms are irrecoverable.
The new insurer will have taken the previous certificate at face value and there would be no moral or legal imperative for them to later correct the previous insurer’s error.
If an insurer is taking a premium from a member, that member has a right to clarity on their underwriting terms.
And if a broker is earning a commission on a placement, they should ensure that they discharge their duties and not consider the case finalised until the underwriting has been completed.
