Moratorium or bust?

Moratorium underwriting is said to keep PMI affordable for more consumers, but it is best sold with specialist advice, argues Emily Perryman

Moratorium underwriting continues to be a hotly debated topic among private medical insurers and intermediaries. Advocates of the practice argue that its simplicity attracts customers, while critics believe it leaves policyholders in the dark.

The Office of Fair Trading’s (OFT) investigation into the practice is well behind us and insurers have made significant steps towards making their literature clear and ensuring consumers understand what moratorium underwriting means. But some are yet to be convinced that it is beneficial for consumers.

Charlie MacEwan, head of communications at the insurer WPA, says: “Moratorium underwriting is bad for the insurance industry because consumers don’t know what they are getting or what they are covered for until they claim. Salesmen say that they explain the policies, but the consumer doesn’t get a certificate. With full medical underwriting the customer gets a certificate which explains what they are and are not covered for, so there is clarity.”

Exeter Friendly Society also has reservations about moratorium underwriting and it has therefore decided to exclude the option when it launches a new private medical insurance (PMI) plan later this year.

Nick Jones, brand and marketing manager at Exeter Friendly Society, says: “We weighed up moratorium underwriting very carefully and we found that the disadvantages outweighed the advantages. At the moment, if the customer doesn’t seek treatment for a pre-existing condition for two years the condition is covered. But we want to provide clarity upfront and we don’t want to discourage people from seeking medical treatment. The aim of our new policy is clarity, transparency and simplicity.”

Some brokers agree that consumers sometimes do not understand what moratorium underwriting entails. Michael Payne, director of personal healthcare at ADVO Group, says clients who have done background research before coming to the firm for advice can be confused by the information they have received from insurers.

“The client may think they will be covered for pre-existing conditions after two years, but they forget that this only applies if they don’t go for treatment,” says Payne. “Others think the moratorium applies to conditions existing in the last two years, rather than the last five years.”

Despite this, the majority of insurers do offer customers the choice of moratorium underwriting alongside full medical underwriting. Even BCWA, which traditionally steered clear of moratorium underwriting due to the bad press the clause received in general, decided to introduce it in 2005. Howard Hughes, BCWA’s head of marketing, says the decision was largely based on demand from PMI brokers.

“It hasn’t caused any problems for us or for our customers,” says Hughes. “Moratorium underwriting in the wrong hands can lead to mis-selling, but we are a more disciplined industry than we used to be.”

One of the main benefits of moratorium underwriting for the insurer, intermediary and consumer is its convenience. The consumer does not have to fill in a lengthy application form about their medical history – they will only be underwritten at the point of claim and medical conditions will not be excluded upfront.

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