Analysis: underwriting and mental health

Are insurers taking too tough a line? Madeleine Davies reports

A large number of financial advisers’ clients may have experienced mental health problems at some stage in their life and guiding them through the underwriting process can be complicated. Madeleine Davies finds out how insurers are trying to make the process easier

At any one time early one person in four (23%) is experiencing at least one psychiatric disorder, according to the adult psychiatric morbidity survey published in 2009. Mental ill-health has overtaken musculoskeletal problems as the leading cause of incapacity benefit awards and it is now the leading cause of income protection (IP) claims, totalling 30% of all claims, according to data from Unum and Canada Life. Unsurprisingly, this high level of incidence is posing difficulties for applicants and underwriters alike.

“I experience increased numbers of clients year on year who disclose a history of mental health issues to me, which are often minor, while completing application forms for IP,” says Henrietta Oxlade, an adviser at London-based firm Radcliffe & Newlands. “I do not recall a single case being accepted without an exclusion.”

Alan Lakey, partner at Highclere Financial Services, an IFA based in in Hemel Hempstead, has a similar tale to tell.

“In every instance of mental illness it seems to be an automatic exclusion by the provider,” he reports. “It’s a knee jerk automatic reaction. There is no discussion about it and I have to say I’m not particularly happy about it.”

Advisers agree that the frustration lies in the apparent reluctance of insurers to discriminate between the various forms that mental illness can take.

“In the majority of these cases, the clients may have been suffering from mild depression or anxiety, have taken anti-depressants for a period of time, but have had no time away from work,” explains Oxlade. “To have cover turned down, or accepted with an exclusion can seem harsh, especially taking into account the speed by which medication is handed out by GPs, and the lack of communication regarding the consequences of taking this medication.”

“I find it discouraging that there does not appear to be any kind of distinction between mild and clinical depression,” adds Lakey. “Someone who is schizophrenic is clearly different from someone who felt a bit down once, perhaps because of an event that isn’t likely to recur. We don’t automatically say that if you have raised blood pressure you are not going to be covered for a heart attack.”

Risk of recurrence

Underwriters express sympathy with advisers’ frustrations.

“It’s still the medical condition that gives us the biggest headache in terms of IP,” says Andrew Potterton, chief medical underwriter at Unum, the insurer. “It’s now very rare to ask for a GP report for back pain, but we will still often ask for medical evidence about mental ill-health.”

Mike Taylor, chief underwriter at Friends Life, believes that underwriting has become more sophisticated in recent years, but explains that the risk of recurrence in mental ill-health continues to pose challenges for insurers.

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