The penny hasn’t yet dropped. From December 21 sex discrimination on insurance will be illegal. For the avoidance of all doubt, contracts entered into after midnight of December 20 cannot discriminate by sex.
The law doesn’t consider pipeline applications, the contract has either been entered or not. From December 21 male term and CI rates will increase by up to 5 per cent and female term and CI rates between 20 per cent and 25 per cent. For IP male rates could increase by 10 per cent to 20 per cent, but females rates could fall by 15 per cent to 25 per cent.
In my previous articles, I’ve said that applications need to be submitted by September 31, to provide a 3 months buffer to absorb the uncertain underwriting period and acceptance delays.
At the excellent LifeSearch awards last week, Tom Baigrie called on insurers to honour the terms on all pipeline applications received by December 21. Unfortunately this cannot happen, regardless of whether insurers support the spirit of this. Insurers could only avoid price discrimination by reducing rates on pipeline cases to the lower of the separate sex terms. This would have a significant financial consequence, and unintended consequence, as IFAs would best serve their customers by delaying all male term and CI applications to get female rates! Interestingly this tactic should be considered for female IP applicants, as their rates should fall by 15 per cent to 25 per cent.
More importantly, Tom’s point underlines a fundamental issue, there is a general knowledge vacuum. Insurers need to plan and make clear to IFAs the actions they will take. This must happen as soon as possible.
We now have six months, or 123 days, to submit all applications that may trigger a GPR. As we get closer to end September, and certainly beyond it, IFAs would be need to use their knowledge of insurers to determine which is more likely to complete the policy by December 21. The longest delay will be for GPRs, followed by medicals, so as we move into H2, IFAs should select insurers with the lowest requests for GPR and medicals. As we then move into November and December, consideration should be given to underwriting resource capacity and STP completion rates. It is also important not to forget the use of “wet signatures” and whether this is required as part of the acceptance terms, or could result in insurers cancelling the policy.
For an IFA the price of a wrong decision for their customers could be high. For a £50 per month premium over 30 years a 25 per cent unnecessary female rate increase could cost £4,500. Of course, older applicants have higher premiums and greater risks of GPRs.
Insurers need to provide IFAs with good operational planning information, so that they can make informed provider selection decisions. For females, any new business premium advantage a slower insurer has over a faster one, could be completely swamped by a 25 per cent rate hike.
IFAs should ask insurers for their turnaround times and percentage of cases outstanding after one, two and three months, by age band and sex, with the female column being critical.
The alternative could be chaos as IFAs would be forced to multi apply in a contract race to December 21. This could prove self-defeating as it costs IFAs valuable time, and insurer resources are spread across duplicated applications, thereby slowing down the average non-STP application process. There is also a greater risk of non-disclosure, if IFAs try to answer different insurer question sets without the applicant present.
This whole process requires careful planning and excellent communications between IFAs and insurers. Having launched and run an insurer, I know the value of effective project planning. We are now in March. By now IFAs should be well into delivering their marketing plans to capture their female target customers. To maximise their impact, insurers should have provided IFAs with effective sales support material, to quantify the likely rate change and to appeal to females.
Returning to the LifeSearch awards, my other takeaway message from Tom Baigrie’s comment is that IFAs have 3 months less time than they had thought, in particular for lives that may require GPRs.
Martin Werth is managing director of Living Benefits