“Sick in the head”? The phrase doesn’t quite work for Tina – a 38 year old Mum who suffered from post-natal depression and then found her life and critical illness insurances 30% more expensive than if she hadn’t declared it. (£26 per month became £34 per month).
Tina came across as self-aware, articulate and yes – self-confident. Anyone less sick in the head you couldn’t hope to listen to. You can test my judgement by listening to Moneybox (Tina’s is the first item).
Tina’s objection was to being declared potentially sick in the head, when she had made a full recovery. The provider (s) she approached were explicit in why Tina had to pay more for her policy. Her beef was that she hadn’t been warned of the risk (and I guess that she’s now on a register of “impaired lives” – though the program didn’t explore this).
Tina made a wider point that the lack of transparency is unlikely to increase take up of life and critical cover by those with ” pre-existing mental health issues”. I’m with her on this, people need to know whether they’re more likely to be sick again and if so – accept that they need to pay more for cover. If the answer is “no” – the solution is not to avoid the issue – but to underwrite and treat Tina as having a “clean bill of health”.
Transparency in life insurance
Increasingly the underwriting of insurance is becoming more mechanistic and less discretionary. What that means is that you should be able to test your likely premium online (as it seems Tina did). Critically, you should be able to declare your medical history anonymously and find out which insurers are prepared to underwrite you for what you’ve declared.
Johnny Timpson, a friend of this blog, came on Moneybox, representing the insurers. He explained that this question is currently under review by the insurance industry. He pointed out that without underwriting (declaring this stuff), premiums would go up for everyone. The question is whether Tina should have been able to shop around anonymously and get the best rate for her.
It seems that price comparison sites cannot do this (yet). To repeat a statement from the program by another insurance spokesperson
“It’s better to speak to a specialist insurer or broker direct , something that price comparison websites are far less able to do”
Where the program became contentious was over this question of signposting.
Johnny also referred people like Tina to specialist risk advisers (a type of financial adviser) who can guide people through the particular risks.
I must say, I didn’t pick up on the matter to which some very good IFAs took offence
Totally agree with you – Not only is he wrong, but it’s an irresponsible thing for @AdamShawBiz to say. Who else but an adviser is going to guide someone through the minefield of applying for impaired life cover?
— Dennis Hall (@YellowtailFP) December 15, 2018
Being sound in mind and body, Tina probably felt that she could guide herself through the minefield of applying for life and critical life-cover online.
The question is whether the fault lies with Adam Shaw as the IFAs are suggesting, or with the application process of comparison sites.
Here I have a dilemma that touches not just this debate- but the more general debate over life expectancy.
What is the price of being sick in the head?
Back in the day both Eagle Star and Allied Dunbar were owned by British and American Tobacco. Though Eagle Star’s advertised life insurance rates were generally worse than Allied Dunbar’s , smokers found they got cheaper cover from Eagle Star because Allied Dunbar applied a 30% rating (increase of premium) , if you declared you smoked. The shareholders of BAT were up in arms about smoker ratings as they implied cigarettes could harm your health. Ultimately, this was one of the reasons BAT sold on the life companies to Zurich.
In the short term, brokers may be able to navigate people who have a history of mental illness to insurers who don’t “rate” them. Because of the less strenuous underwriting, the premiums (like Eagle Stars back in the day) are likely to look more expensive – but they could turn out the cheapest (as Eagle Star’s did for smokers).
Tina, being totally recovered and feeling that her depression was a “one-off” would no doubt want to go for the lowest premium for her circumstances. She is effectively waiting for the price comparison sites to catch up to the standards of the IFAs who can apply the human judgement needed to avoid Tina’s predicament (she is now known as an impaired life to all insurers).
But in the long-term, as we understand data better, post natal depression of the type Tina suffered will get better understood – as will its signposting risks of future illness with the life-threatening properties that some mental illnesses carry.
The truth is that we don’t know the price of being sick in the head and so long as we don’t, people like Tina can insure with insurers that don’t rate them and avoid insurers who do. Or at least they could if they had the information upfront.
Insurance works the other way too
If Tina was applying for an annuity – rather than life insurance – she might find some annuity providers taking a view on her medical history and giving her a better income for the rest of her life as an “impaired life”.
There is however a cogitative bias in our DNA which stops us telling people some aspects of our medical condition and I fear that declarations of mental conditions is right at the top of the list of undeclared conditions. That is because people are ashamed of being sick in the head.
Anyone who watched the brilliant article on mental illness in the horse racing industry, will understand how hard it is for professionals of any description to declare mental illnesses and society is doing exactly the right thing today, in getting rid of the stigma of being sick in the head.
🔊 SOUND ON 🔊
Sports psychologist and former CEO of the PJA, Michael Caulfield, joined us in the studio for a discussion on mental health in racing pic.twitter.com/N39xPW81vf
— ITV Racing (@itvracing) December 15, 2018
Transparency works both ways too
If we are to take mental health issues seriously, we are going to have to work out the price of being sick in the head , not just today, but on our future mortality and morbidity (the chance of getting sick in the head again and the chance of it killing you).
If some mental conditions (Tina’s may be one) are acute but not chronic – those conditions can be excluded (as Tina wants). If they are indicative of a chronic (ongoing) condition, then they should not be excluded.
The minefield of impaired lives (referred to by Dennis Hall) arises from there being no certainty on this – and this arises from their being too little research on the long-term prognosis for people like Tina.
In the short-term , so long as the opportunity to arbitrage against insurers is around – then using an insurance broker is cost-effective. But I suspect that in the long-term – most people will want to compare the market using well “compare the market”. After all, if you can get this sorted out without the heartache of discussing sensitive matters with a stranger – you probably would.
Should the price of being sick in the head include extra financial advice?
Which puts the ball in the court of the comparison sites to get their underwriting more transparent and more user-friendly. If they did, then Tina and many like her, would be able to get on with insuring their and their family’s futures a little easier.
As with pensions, requiring people to pay advisers to tell them what to do, is more likely to exclude people from advice than anything else! 94% of us choose not to pay for financial advice – which suggests that on-line solutions are the way forward. The price of being sick in the head need not include the cost of using an insurance broker.