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‘Access to insurance’ is a term coined in the United Kingdom that refers to the ability of individuals to buy insurance cover. It came about as a result of concerns that people who present an extra risk, especially owing to a medical condition, should be enabled as far as possible to obtain cover in the interests of a fair and equal society. Recently an industry working party has been working on various ways to ensure fair access and to improve consumer understanding of underwriting and underwriting decisions.

While this article was prompted by a UK-specific initiative, do stay with us. The issues and principles involved can be applied elsewhere too. It really does make sense that insurers do everything they can to win the trust of consumers and the bodies that represent their interests – such as distributors, charities and regulators – by ensuring that the underwriting process is fair, transparent and is open to scrutiny by all stakeholders.

The latest deliverable in the very commendable work done by the working party is a paper called ‘Explaining underwriting decisions’ which applies to those situations in which an insurer offers non-standard terms or is unable to offer cover. Almost 20 insurers have signed up to the principles it sets out. Currently some customers may be left wondering why an insurer has made the decision it has and decide to abandon their search for valuable cover. Some may be pointed to their attending physician who may then struggle to explain the decision. Others may be told that it is something gleaned from a medical report or that it is due to a condition they have disclosed. Often, with the help of a specialist broker or adviser, these consumers may find cover elsewhere and, arguably, for someone with a medical condition, life or disability insurance cover is even more valuable than for someone who has a clear medical history.

The provisions of the paper come into force with effect from 1 December 2021 and include:

  • Insurers will explain in broad terms what underwriting is and why it happens.
  • If an applicant has been refused cover the insurer needs to ‘signpost’ that cover may be available from other insurers or distributors.
  • Where an adverse decision has been given, insurers will explain what information was used to make the decision and the reason for it; strictly this is only when a customer requests it.

So what is the impact going to be for insurers?

According to the paper the customer journey should include some broad description of the underwriting process and why it is needed. We don’t think this shouldn’t be difficult to achieve: there are already plenty of up-front declarations or information text that an applicant should read. However, insurers need to think about how they present this information to avoid overwhelming applicants and turning help into confusion.

Where there is a third-party adviser or distributor involved, the obligation is on them to help the applicant to seek alternative sources of cover and to explain the reason for the decision if requested. This is quite likely what happens, or should happen, now and so should not require much additional work for the insurer. Arguably an independent adviser/distributor should be seeking alternative sources of cover anyway and the requirement to ‘signpost’ should be something they are already doing. ‘Signposting’ is where an insurer or distributor directs an applicant to a specialist firm to help find cover, maybe by using a directory of such specialists.

But in the UK a large percentage of applications will be processed by an automated underwriting system. So the insurer has a dilemma: does it provide the reason for the adverse decision in all cases or only when asked by the individual? Just reacting to applicants’ enquiries as to why they have been offered non-standard terms may be the easier option but is it in the spirit of the new guidelines?  We think some firms will want to supply this information to all applicants and in our view this is what the spirit of the guidelines intends.

It is noteworthy that in Australia a report by a Royal Commission into the insurance industry introduced the concept of ‘community standards’. The report’s message to the insurance industry was that insurers should aim not just to comply with the minimum standards but also to ensure that their actions meet the reasonable expectations of consumers who have a right to believe that firms should treat them fairly and justly. In other words, insurers should consider not just ‘Can we?’ but also ‘Should we?’ in deciding their activities and decisions; this should be embedded within a firm’s culture.

The situation gets really interesting when an application is put through a comparison service. Will the applicant get a ‘reason for decision’ notice from every insurer on the panel? Will it be centrally coordinated by the panel? (Unlikely, we suggest.) Will he or she just get a notice from the insurers that have decided to provide them in all cases? If the latter, it could be that some insurers provide a reason for the decision and that others don’t.

In the UK the use of external data sources is nowhere near as developed as it is in a market like the USA. If the US were to follow suit with this approach then insurers would have to explain why the applicant has been rated and how any algorithm used in the process has produced this decision. Which is of course what they should be able to do now, but doing this routinely in every case could provide insurers and their systems with a few challenges. But this sort of transparency is important and, ultimately, is what regulators may in due course demand if they do not already.

One final thought is that this initiative may have some unintended consequences which results in a shock for some applicants. Think about someone who suffered with breast cancer a few years back and has now been told by their physician that they are ‘cancer-free’ or ‘cured’. They then apply for insurance only for that to be offered at an increased price due to the long mortality tail that some breast cancers carry. This may be a distressing message to digest.