The ABI's Working Party has issued a set of guidelines to help insurers ensure they meet their responsibilities in offering disabled people, where possible, the same terms as able-bodied policyholders
The government is committed to ensuring that disabled people have access to the goods, services and facilities that other people take for granted. To that end, the first two phases of the Disability Discrimination Act (DDA) have been in effect since 2 December 1996 and 1 October 1999 respectively. All service providers, including insurers, have a duty to take reasonable steps to change any practice, procedure or policy that makes it impossible or unreasonably difficult for a disabled person to use their services. For insurers, specifically, this means disabled people being able to take out insurance.
Some 18 months ago the ABI established The Disability Discrimination Act Working Party. The Working Party drew its members from leading players in the life industry and called on the experience of leading disability action groups including the RNIB and Mind throughout the lengthy drafting of the guide. The completed work, A Life & Disability Insurer's Guide to the Disability Discrimination Act 1995, has some industry heavyweights behind it too. Disability minister Maria Eagle and director general of the ABI, Mary Francis, both endorsed the guide at its launch in September.
On the face of it, the guide should have no practical impact on the approach life offices take when underwriting cover for people with disabilities. Good practice already dictates that you should always be able to justify any underwriting decisions taken, such as applying special terms. The sad truth is, however, that there will be a minority of offices that may have selectively priced contracts to make them unattractive to people with disabilities or, at worst, refused to offer any cover.
The basic principle behind the legislation, echoed throughout the guide, is that insurers should offer people with disabilities the same cover on the same terms as non-disabled people wherever possible. The Act itself has not yet been tested in law, so we cannot say for sure what its impact will be on underwriting practice. However, it is now explicit that insurers should only offer less favourable terms if there is a lawful reason based on relevant and reliable data to do so. In this context, less favourable terms include charging a higher premium or offering less cover by applying an exclusion to the policy.
Throughout the consultation and drafting of the guide, the Working Party recognised that if the guidance was to be of real value to insurers and disabled people taking out insurance, it had to do two things.
First, it clearly needed to be a practical guide. To be practical, it needed to answer the more complex questions from insurance underwriters about practical situations that were coming up where there was no other guidance.
But even more important than that, the finished work had to address the concerns of people with disabilities. To do this, we had to talk to people and organisations that could tell us what these concerns were.
With almost one in ten people in the UK population meeting the definition of disability in the DDA1, insurers should think long and hard about how they will underwrite cover for such a large and influential segment of the population. Smart life offices are already looking to capture a share of this market by providing products that offer value for money insurance for everything from simple life cover to cover for heart attacks and more serious conditions.
With the advent of the DDA, underwriters now should document the importance of the Act and its impact on underwriting practices and claims management processes. This should include the details of the procedure for complaints and appeals.
The underwriting philosophy will be critical when justifying underwriting decisions and insurers making an adverse underwriting decision must record on the underwriting file how it arrived at that decision.
There are a number of special rules that affect insurance and where you can treat a person with disabilities differently from others. Less favourable treatment is only 'deemed to be justified' if:
• It is in connection with insurance business you carry out.
• It is based on information that is relevant to the assessment of the risk.
• The information is from a source on which you can reasonably rely.
• The treatment is reasonable based on this information and any other relevant factors.
Underwriters may propose less favourable terms by declining or postponing an application, or by applying special terms (for example, charging a higher premium and/or applying an exclusion) only if all four of these conditions apply.
To that end, underwriters must not rely on assumptions, stereotypes or generalisations about people with disabilities. All decisions must be based on relevant information or data available at the time, which will form the basis of the underwriting process. This includes actuarial or statistical data, medical research information and medical reports about an individual.
Good insurers regularly review their underwriting guide to ensure it is based on reliable, up-to-date information that it is reasonable for its underwriters. The chief medical officer may be required to help interpret medical information to assist in making an accurate underwriting assessment.
It may be that the opinion and advice of a CMO alone is not sufficient and, in some cases, underwriters will seek advice from a medical specialist in the appropriate discipline. The example below taken from the guide shows how an application should be treated to ensure compliance with the DDA.
A man aged 38 sends you an application form for life cover and income protection. He has answered 'yes' to a question that asks whether the applicant has ever had any form of mental or stress related illness that involved treatment and/or resulted in time off work.
You find out from his GP that he had been suffering from anxiety related symptoms that started about seven years ago. At the time, he had two weeks off work but had no prior history of anxiety. He was prescribed Seroxat and was referred to a community psychiatric nurse.
Over the next two years, the anxiety was gradually resolved and the treatment stopped. Since then, he has been symptom-free for the past five years.
In the circumstances of the case, you accept the life cover and income protection on standard terms with no extra premium.
In this example, a factor that may influence the decision may be the deferred period for which the man applies. This emphasises the importance of taking individual circumstances into account.
Another fairly typical example of underwriting practice by life offices is to remove conditions and apply an exclusion from the cover on offer. A robust underwriting assessment would also take into account the possibility of offering full cover with an extra premium. The DDA requires that if a life office is unable to offer full cover for, say, critical illness, even with an extra premium, cover should be offered proactively subject to an appropriate exclusion as an alternative to declining cover.
Applying an exclusion
A man applying for critical illness cover has a history of cancer. In the circumstances of the case, you may decide to remove cancer as an insured event. In addition, you may also decide to apply the exclusion to avoid claims arising from a recurrence of the cancer in the spine or brain causing paralysis or stroke.
The remaining cover still offers good value for the male customer because the majority of critical illness claims for men result from illnesses related to ischaemic heart disease. These would still be covered.
In this example, again taken from the guide, the man applying may have had testicular cancer four years ago with no evidence of recurrence.
Here, the underwriter may make the exclusion above but allow all the remaining critical illness cover at standard rates. It is ultimately the individual's decision on whether to proceed with the cover, even though the normal cover is reduced.
Finally, when policies are re-underwritten, insurers must apply the same considerations about the DDA to them if, for example, there is an increase to the amount of cover or if the policy is restarted after a lapse.
When an insurer reviews terms for an individual policy taken out before the DDA came into force, the DDA applies to the review and to the policy thereafter with the following exceptions:
l The DDA does not allow any policyholder that took out a policy before December 1996 to ask companies to review policy terms according to the provisions of the DDA, unless the policy itself gives the policyholder the right to invoke a review.
l The Act does not apply to premium reviews that apply to all policyholders, for example, a change to the mortality rates that applies to all policyholders or the periodic reviews that apply to many types of unit-linked policies when the individual policies reach their review date.
The guide, which is available via the ABI website at www.abi.org.uk, is a useful first step for insurers to make sure they not only comply with the law, but also highlights the commercial advantages in making their products available to the 8.5 million people in the UK with disabilities. That's a section of the population that insurers ignore at their peril.
Insurers are now legally bound to comply with ABI guidelines when underwriting applicants with disabilities.
The guide means disabled clients can expect the same level of service from all providers.
Underwriters must base their decisions on relevant data rather than assumptions about the applicant's circumstances.
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