Marcello Bertasso explains why in a world of underinsurance, life insurance companies need to cast their nets a little wider.
In dealing with the challenge of insuring the uninsurable, where does the responsibility lie?
It lies with insurers.
It’s our obligation as insurers to push the boundaries to ensure more people can access the insurance they need at the times when they need it the most.
An uninsurable risk is deemed to be uninsurable due to pre-existing conditions, health challenges, hazardous activities, exposures or pursuits and this is where our efforts should be focussed.
Another group of uninsurable risks exist, which include risks considered illegal, criminal or against public policy.
The life insurance industry declines to insure up to 10 per cent of applicants. This declinature rate is dependant on product type, applicant demographic and the method of underwriting employed.
So what can be done about insuring the uninsurable?
The answer lies in two camps. Firstly, the net needs to be widened to allow more applicants in the insurable pool and secondly, the underwriter must respond by continuously improving their underwriting capabilities and approach.
Underwriting approaches take into consideration many factors.
Not the least of which are the product features and pricing but also the likelihood of an insurable event happening.
This is an ever-moving occurrence as fortunately, clinical outcomes of diseases and hazard exposure are improving.
Take diabetes as an example, the role an underwriter can play in ensuring people can access valuable insurance becomes clearer.
Diabetes is a complex disease, which, until very recently, was considered uninsurable for income protection and trauma cover.
Diabetes presents many complications, including heart disease, renal disease, cancer and stroke. In the context of trauma cover, these are ‘The Big Four’ causes of claims.
Globally, diabetes will affect almost 8 per cent of all people during their lifetime. The figure in Australia is slightly better with trends in diabetes prevalence affecting below 4 per cent of the population.
Less than a third of sufferers will adequately control their blood sugar levels and less than half of those diabetics will not present with direct complications.
This is a concern for the underwriter if the aim is to insure those diabetics because currently, only diabetics without complications can be insured.
But rest assured, as there is hope. Using creative thinking and researched risk management, it is possible to consider this type of cover for applicants who do not exhibit the wrong risk factors.
The result is that smart insurers will now offer cover to a sub-set of well-controlled diabetic applicants with modified terms on their contracts.
These modified terms mostly require very high-risk conditions, such as cardiac and renal disease, to be removed from the covered conditions.
In instances where deletions in covered benefits have been applied, insurers are offering a rebate on the insurance premiums charged.
So while underwriters are focusing their efforts on the relentless search for better underwriting outcomes, the net is not cast wide enough to cover more people.
Herein lies a dilemma as too few “standard lives” are being covered.
The underinsurance gap in Australia has been documented as widening.
Fewer “standard lives” in insurance pools increases the volatility of an insurer’s results and reduces risk appetite and capacity.
On the other hand, potential applicants self select. Some applicants mistakenly believe they will not be offered insurance cover or the underwriting process will be so onerous and therefore, they avoid applying.
Insurers have responded by simplifying the underwriting process and providing access to pre-assessment and concierge services, which assist the planner and applicant to get an understanding of the likely insurance terms and provide assistance in navigating through the underwriting process.
Underwriters have evolved to look for mitigating factors in order to assist in covering complex risks; applicants and planners can assist by providing full and detailed information about their risk factors.
When presented with full information, an underwriter does not need to make assumptions, which could err on the side of caution.
Consider the example of the diabetic, an underwriter will be looking for a multitude of co-morbidities and cannot assume they are absent if the information provided to them does not clearly exclude them.
With a greater understanding of the clinical outcomes, the underwriter is able to give credit factors to pre-existing conditions provided this is clear in the information supplied.
Joint cooperation improves decision-making and translates into more applicants being insured. There must come a time when all applicants could be insured on a commercially sustainable basis.
Marcello Bertasso is head of underwriting at AMP.
