Very special terms

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Exclusion, benefit deferred, percentage premium loading, waiting period extended, covered condition removed, per mile loading, benefit declined...all the terms advisers don't want to hear.

Friday, October 21st 2005, 8:36AM

by Naomi Ballantyne

One of the most time-consuming and delicate parts of an insurance adviser’s job is explaining and selling sub-standard acceptance terms to clients.

Many advisers like to pride themselves on their ability and willingness to find the ‘best’ terms possible for the client; other advisers see the offer of sub-standard terms as a key tool in closing sales, while others again panic and very often allow the application to slip away rather than confront the client with sub-standard terms.

Make no mistake, it is very tricky confronting a client with the news that they are not considered ‘normal’ by a life company. Even though your client may be well aware they have a pre-existing condition, the knowledge that the life company thinks they will die sooner, or become more disabled, than the general population can be very distressing.

One way of diffusing any potential conflict is to undertake an element of pre-warning at the application stage. Making your client aware right from the start that any pre-existing health conditions may require special acceptance terms can soften the blow if and when special terms are actually offered.

Shopping for the best terms may seem to be the right thing to do for a client. However, when you scratch the surface, the eventual outcome may not be quite so beneficial.

From time to time, some companies embark on ‘business buying’ exercises, where their underwriting becomes very lenient in their quest to secure market share. This can and has led to situations where clients with obvious pre-existing conditions are accepted at very generous terms compared to those terms offered by the rest of the market.

While this may seem like a good outcome for the client, there is plenty of anecdotal evidence to suggest the direct outcome of ‘easy’ underwriting is a very tough approach to the payment of claims.

An adviser’s reputation is brought into sharper focus at claims time than any other. So, the fact that the cover was accepted at more lenient terms will not ease the client’s distress if a claim is being handled obstructively.

Let’s assume that the decision about where to place the application has been taken after a careful process of needs analysis, and the recommended product selected on the basis of the best fit to the client’s needs.

If the preferred provider, Company A, determines the risk at +100% of standard rates and the adviser is able to secure +50% with Company B, the client would seem to be better off with Company B (assuming the monthly premium at +50% is lower than the monthly premium with Company A at +100%, which is not always the case).

However, it is not only the premium that is different with Company B. After all, a decision had already been made that the cover offered by Company A (as preferred supplier) was better for the client.

For example, if Company A offers a comprehensive intensive care trauma benefit and Company B does not, then the acceptance terms with Company B are effectively equivalent to +50% premium loading and an exclusion for the intensive care benefit.

In these circumstances, the client may be better off to reduce the sum assured with Company A to bring the premium in line with expectations rather than take the cheaper cover with Company B.

If the client were to suffer from a condition that would have been covered by the intensive care benefit, no amount of explanation about cheaper premiums is likely to lessen their distress when they find they are not covered by Company B.

Running away from sub-standard terms is absolutely the worst thing an adviser can do for their client. While ‘fronting up’ can be difficult at this time, it is absolutely essential that advisers do so. After all, if the client does have a pre-existing health issue, chances are their health will continue to deteriorate into the future.

It is also possible that the same client may not be able to secure terms in the future, so walking away even from sub-standard terms can have far-reaching effects.

There is no doubt that a client who is offered sub-standard terms should immediately take as much cover as they can justify and afford. We should not let our reluctance to explain sub-standard terms prevent us from doing the right thing by the client, nor allow us to walk away from a great business opportunity.

The business we are in is so much more complicated now than compared with 10 years ago. It is no longer acceptable to consider only the simple answer to issues that have such a potentially significant impact on clients.

Acceptance terms can no longer be considered purely on the simple differences in terms between one company and another. It is the combination of product provider, product and individual acceptance terms that determines the best solution for the client.

Naomi Ballantyne ONZM, is the Managing Director at Partners Life.

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