The cost of convenience

The trend towards selling non-underwritten cover is growing.

Monday, September 5th 2016, 11:03AM

by Russell Hutchinson

Advisers are going to find a lot more of these clients in the next few years. What’s going on, and why?
It will not surprise you to know that direct insurance has a low conversion rate. Without the assistance of an adviser many clients do not carry on with their applications for insurance under their own steam. A big reason for that is underwriting questions. The more personal, complicated, and pointed, the more likely a client is to drop out.
But, remove the underwriting and hey presto! More people are covered, and in a world where not enough have cover that is a good thing.

But that comes at a cost.

Two costs in fact. The premium will be higher and the policy will usually have some quite tough restrictions – pre-existing conditions, sports / hobbies, and some occupations.
Take price. There is a conventional wisdom that ‘going direct’ and ‘cutting out the middle man’ means lower cost. This can be true for some specific offers, but typically isn’t true overall, and when you bring in differences in policy features the value demonstrated is, frankly, a matter of choice. But if non-underwritten products come to dominate then costs will routinely be higher. One example we just did shows that a popular non-underwritten cover is 40% to 60% more expensive than the underwritten equivalent. That’s a big difference, but it doesn’t end there.

Whether you are covered or not isn’t that simple. One insurer offers a great brochure to explain how pre-existing conditions exclusions, occupational exclusions, and hazardous pursuits exclusions all work. It’s eight pages.

Having said that, I am actually glad these products are available. Clients taking them out to save an hour filling in an application form, or the embarrassment of confessing to a stranger a medical condition, are making a trade-off – an expensive trade-off – but nevertheless one that they have chosen. You may even suggest these products in rare circumstances. A person with pre-existing conditions and an urgent need for cover could buy this in the interim. But there is another reason you might like the fact that this cover is becoming so popular: when you come across someone who is now ready to invest a little time, it is so easy to offer something better.

Tags: Insurance Advisers Russell Hutchinson