The introduction of a non-contestability period on insurance products is potentially dangerous and could lead to increased social exclusion, says Association of British Insurers head of health and protection insurance Richard Walsh.
Walsh says he has a “massive problem” with the Law Commission’s proposals to introduce a non-contestability period which would mean all insurance claims are paid out after a policyholder has held a policy for a certain number of years.
He says it could lead to social exclusion because the application process would be more expensive as it will be slowed down by more rigorous underwriting, medical tests and more GP reports.
Walsh considers that insurers and reinsurers would be less likely to take on the risk of people with existing health problems because they are more likely to have to pay out claims for them.
This would mean non-standard lives would be charged higher premiums and therefore would be less able to afford life or protection insurance which would widen the protection gap.
Walsh says: “This is the most contentious proposal and the one I have the most problem with. It seems nice in principle but it is very different in practice. It would exclude people on affordability grounds.”
CBK principal Peter Chadborn says: “I do not have an issue with the cost of standard life insurance as a whole going up because it is so cheap anyway that a rise in price should not have an impact on sales volumes.
“But I do have an issue with the non-contestability period if it increases the cost of non-standard life insurance because this is already an area of concern. Similarly, it is worrying if critical illness and income protection products rise in cost as this will reduce the affordability of these products which are already quite expensive.”