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Underwriting How can recommending a more expensive provider save clients money? LifeSearch senior technical adviser Kevin Carr explains the conundrum

Is it possible to save your clients money by recommending a more expensive insurer? Absolutely.

Many people with everyday health issues are better off not using the cheapest insurer. This is because they can often be the ones with the harshest underwriting.

I want to make it clear that I am not referring to heart attacks or a myriad of complex and unheard of conditions but everyday issues such as high blood pressure, stress, back problems, diabetes, weight or poor family history.

These are issues that most protection advisers face each week and, in the current protection price war, recommending one of the more expensive providers can often save clients thousands of pounds in premiums over the term.

The price of any product is important but, in protection, it is the real price that consumers pay every month, after they have been underwritten, that is really important. With underwriting tightening at the lower-cost end of the market, this is where independent advice can really add value.

Some call it cherrypicking while some call it preferred life underwriting. Either way, protection advisers know that insurers are not all the same when it comes to underwriting. In fact, in the current environment, they can be very different.

Consumers are being lured with seemingly cheaper premiums in exchange for more questions, longer application forms and harsher underwriting. This leads to more loadings, more exclusions and more declines. Is this the real consequence of the protection price war?

The cherrypicking approach may be a perfectly agreeable business model, particularly from a shareholder’s point of view, but how does it benefit consumers overall and does it help to counter the growing 2.3trn protection gap?

Competition boosts markets and nobody knocks a bit of consumerism at its best. So the protection price war would be fine if every client had perfect health, a run-of-the-mill job, did not smoke or drink to excess, engaged in no potentially dangerous hobbies and whose family were in tip-top health.

But what if you are a consumer who does not fit the insurer’s box? And who does not speak to an adviser who knows the market? You end up paying well over the odds, possibly with a nasty exclusion, or you end up buying nothing at all.

What benefit has consumerism brought to the table? Some might say it is about little more than making a commoditised product more competitive. But, by definition, consumerism is any movement advocating greater protection of consumers’ interests. Advertising cheap premiums that many consumers will never actually receive is not protecting their interests, in my book.

Some providers would say the reason there are more questions is so they can assess risk more accurately and pay more claims. They state: “A Mercedes is better than an Escort.” Good job too, I say. If I thought for one minute that, at 30 pages, insurers were holding back on questioning just to decline claims, I would apply for a job at the NME.

Skandia tells me that 43 per cent of applications over the past 12 months were accepted at standard rates, with 27 per cent non-standard, 6 per cent either postponed or declined and 24 per cent in the pipeline.

Let us end on a challenge. I would like to see providers publish the percentage of protection applications they accept at ordinary rates, non-standard rates and decline at acceptance stage and then the same percentages for cases in-force (on-risk). Comparing the results should make very interesting reading, indeed.

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