Analysis: Individual income protection - the ADL debate

Exeter Family Friendly has offered an own occupation definition to all applicants for several years and brand and marketing manager Nick Jones says there are only a few very risky occupations that it cannot cover.

“If we can do it, I believe other insurers can too, but at the moment it seems that many are squarely focused on protecting the low risk and so-called preferred lives, minimising their exposure rather than offering good IP solutions to a wider range of consumers, for example those in high risk occupations,” he says. “Ironically, the sector of the population which often most needs IP, for example self-employed trades people, is the least well-served by the majority of the market.”

Jones says that by pricing premiums by age and keeping policy frills to a minimum, Exeter Family Friendly can still keep cover reasonably priced. As a result, he does not believe there are any situations when ADLs are useful.

“An IP policy which includes ADLs is just a piece of paper or a tick in a box, not a policy to be relied upon and to provide reassurance. If there is a need to bring down the cost of cover, or manage risk, its far better to use a control that means a policy will still deliver, but a control that is likely to be far better understood and appreciated by consumers. In my mind a far better yet pragmatic solution to manage risk is to shorten the potential payment period on an IP plan, so rather than being paid no benefit a policyholder is at least likely to be covered for long enough to get back on their feet financially in all but the worst illnesses or injuries.”

Steps forward

Some insurers, such as Ageas, LV= and Friends Life, have recognised the mounting criticism of ADLs and have moved more jobs into the own occupation category. Steve Casey, head of marketing and proposition development at Friends Life, says the provider will try to offer own occupation whenever it can.

“Friends Provident, Bupa and AXA were moving towards that goal and continue to do so. When Friends Life’s new offering is launched in October there will be even more occupations for which own occupation will be given,” says Casey.

Friends Life will continue to offer ADLs to very high risk occupations, such as scaffolders and roofers, as well as to people who are not in employment, for example a houseperson.

“It is feasible to only offer own occupation or suited definitions but we would be excluding some covers,” adds Casey. “The argument raises the issue of community rating – should we raise everyone’s rates a bit to pay for the high risk lives?”

Legal & General takes a slightly different approach when applying definitions. If a client is an occupation class three or four and has had 12 months of claims payments assessed against own occupation, the insurer will then assess the client against an activities definition. If the claimant is undergoing chemotherapy, radiotherapy or dialysis they will continue to be assessed against L&G’s own occupation definition.

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