This is the second post recounting the discussion from our April Protection Forum, focusing on cover for house people and adjusting deferred periods.  In our feedback for this section, 100% of our attendees found the session relevant to their organisation, and 92% found the discussion useful for them.

92%

of attendees found the discussion useful for them

Their loss of income or capacity to the household could be catastrophic, because of the income that they generate, but more so, the unpaid housepersons job that they do.  Effectively, at the moment, we’re left with no way of insuring that housepersons job when they work also work part-time because, as soon as they start earning some money, if you look at the current contracts, then we can only insure 60% of their actual earnings, and they cease to qualify for houseperson’s cover, thereby effectively placing a £zero value on the unpaid job that they do as a houseperson. So for me, the biggest advance that the industry could make would be to create some sort of houseperson cover that up to, say, £1500/month or £1000/month (or whatever the limit might be) allows part-time working but one that is not financially underwritten.

Julie Higman:

One of the things I think is a challenge for house-people is how do you assess their inability to be a house-person? And historically, a lot of that has been very much linked to the activities of daily living, whereas there’s been such a move in the industry to focus on an own occupation definition. How do you class a house-person under an own occupation definition, whereas the activities of daily living are a lot more difficult to be able to claim against?

So the claim for a house-person might be a lot more difficult to actually get through than someone who’s actually in an occupational role. And what category would you put them in if there was a own occupation definition ? because it could be quite diverse, what is actually completed by a house-person. I think that is one of the challenges with actually having a specific house-person contract. We take an alternative view at Aviva of not assessing people by the number of hours that they work for our core product because benefit is based on a percentage of earnings. So, we don’t have that rule of needing to work 16 hours in order to get an own occupation definition. That’s one of the aspects we look at.

But also, I know there’s this move, and we’re not alone in this, of looking at how we do treat people at the point of claim if they do stop working during the life of their policy. People take time out of work for various reasons. Be it to be a house person for a period of time or take a career break, and we’ve tried very much to treat all those customers exactly the same and base it on what they were doing previously, but then limiting how long the claim can be paid to try and keep that simple.

James Boyles:

From the perspective of an adviser, though, there’s a clear need for cover particularly where people are parents and there’s somebody who’s taking the role of houseperson. There is a clear, absolute need for making sure if that person can’t fulfil that role, that actually the family doesn’t suffer dramatically as a result. And it may well be that you’ve got one partner who earns very well and would very happily pay the premium. So, there’s a definite need for cover. There’s an ability to pay the premium. And I think that’s the problem for the industry as to how you solve that.  Give me give me that tool as an adviser and I’ll sell a lot of it.

Peter Hamilton:

And again, really good debate, I will reflect on James’s points in particular. I think there are some interesting observations just in terms of market opportunity. Lee was saying earlier that we need more flexibility in the contracts and maybe I could give a brief perspective as to how things are with us, but why they are that way as well.

From a Zurich perspective, we do have a lot of things you can change. You can have one deferred period or two deferred periods. You can add one, you can take one away. You can also increase and decrease them. I think there’s a lot of flexibility there and that will be echoed to greater or lesser extent amongst other providers. The one point to make is that we have underwriting where we see the change will bring a material increase in risk. Wherever possible, you can make these changes directly on-line, without any underwriting whatsoever.

I’d be interested in any other adviser observations of what kind of flexibility that’s not in contracts today that would be desirable. I understand offering all changes free of underwriting would be attractive. But it’s quite a challenge for us to say you can have whatever change you like, and we won’t underwrite it, because while I’m sure we could sell lots of it, we might not be in business for too long. So we necessarily have some underwriting constraints within that. But in terms of the ability to change, accepting that aspect, what’s missing?

Toby Corden:

We always insist on getting customers’ sick pay to match up and where we’re advising so they’ve got that existing policy, which should be set out for that, but it can be quite a large barrier on occasions where actually someone drops out of the process even if they want to get information or they might be quite happy just to set what a minimum period would be.

I just was curious if anyone had a different approach or perhaps labelling that level of risk or what we’re saying with the over-insurance under-insurance but also highlighting that it might not kick in at that point where you’re setting up from, but it would hopefully kick in at that point where their sick pay was to run out. But that setting that minimum level say, at the moment we have that set out as we have to get those details.

But I think what Natalie mentioned, was that actually that’s what a person thinks their sick pay is might be very different to what they what they do have and later on they find out it’s different anyway. But I just wondered if everyone had a different approach, for if a client can’t get their sick pay details and that’s going to prove a drop off in that customer getting protected.

Natalie Turner:

I was just saying how difficult it is, but I am really surprised at the lack of awareness with clients. So my clients mainly or in the ages between 30 and 50. So they’re not young, but they don’t seem to be aware. And I have to be quite firm in asking for those details with them.

But generally, if I construct the email for them and they just copy and paste it and send it off to their HR, I found that kind of worked, although I have tried to wean myself off of spoon feeding the clients. But then like I think it was Toby or someone else said, the risk is you disengage them or you make it too complicated for them because you want exact details and therefore they disappear and end up with nothing. So it is really difficult to get that balance. I don’t think I would get away with saying, “well, they didn’t tell me. So we’re going to do it at six months,” even though personally, I think that’s still better than nothing.

But if they came back and happened to have 12 months, we’ve just been guilty of over-insuring them. Although, like I say, most people think they’ve got six months. I don’t know whether they hear it because doctors and teachers get that. But there’s this knowledge or this assumption that everybody gets six months sick pay and then they come back saying, “we don’t get anything!”

So it’s just something that I try to understand when I’m doing an original meeting. It’s something that I ask for them. Even if they’ve come to me for pension or investment advice. I try not to scare them. But I do say these are important for further on in our journey and our relationship with me being your holistic financial advisor. So you might think it’s completely got nothing to do with your pension. But over time I’m going to go into these areas. So I do try and from the outset set my stall out and hope they don’t scare too many people away.

Alan Knowles:

Typically, if a client’s sick pay isn’t clear we tend to push it back and ask for a copy of the contract. So the best solution for me is always to push it back as much as you can and not to do anything without actually having that information. And we’ve gone through contracts for customers before where we find out that they’ve been on group income protection schemes and all sorts of things. And they had absolutely no idea that they were in place. And if we’d have done a policy it would have just been a complete waste of time and money.

There are instances, though, where you just really struggle to get that. And then obviously you’ve always got your non-financially underwritten policies that you can look at or you can heavily caveat something, you know, maybe go for a 13 week and say to them, “you really do need to check this.” But for me, just getting copies of the contracts before you do anything is just so important because a lot of the time people just don’t know what they’ve got.

Tim Bell:

I do think it’s an interesting debate. I thought about it and sent in a few comments because I recently advised an NHS employee, a GP in London, she was very interested in having her benefits link to her sick pay scheme because she had only done, I think, three years’ service. So she’d got several changes to come. I think she was on four then she was soon moving to five and eventually moving to six months deferred. So she was very keen to have a plan that was bespoke to her sick pay scheme. of course, all the insurers offered that solution. She chose Aviva after discussion and we put the plan in place, she is more than happy.

The point I’m making, really is the conversation about that cover came about because it was tailored and bespoke to her personal situation. I think financial advisers sometimes want this flexibility in the product so that they can be very bespoke and tailored as they are with all their other products. What may put some financial advisers off is that they can’t always have a bespoke and tailored plan because there’s no flexibility in it. Conversely, I agree with insurers that it’s going to complicate matters, but the flexibility around the NHS-type schemes allowed for career breaks, it allows for temporary loss of earnings due to whatever reason, if she goes on reduced hours for a short period of time. So all of those features tied in and sold the product to her. So that’s the sort of conversation we want to be having with every single client where we can be bespoke and tailored. Let’s have more flexibility if it can be possibly done at all.

I like the idea of the GIO, if there’s a change in circumstance, then we should be able to accommodate it. One thing I was going to pick up on was if the policy is underwritten at a certain level of benefit and the client were to reduce the benefit on a temporary basis, obviously that can be done. There is no additional risk. So the insurer would be happy to reduce the benefit. Would they then increase it back up again without underwriting, having underwritten it on a higher benefit initially? My guess is they would not because they perceive it as being an increased risk. Is the client likely to claim so that’s why they now want to put it up? But if there was evidence to say there’s a change in circumstances, why not let them have that cover replaced again without underwriting?

Lee Thomas:

And I think we’ve mentioned this before, and I don’t know across the board, off the top of my head, but I do know some of the insurers I use, the GIO, you have about three months to inform the insurer, from when that event has happened. And with all the best in the world, I’m sure most of my clients don’t think about that when they’ve just had a baby or changed their mortgage or their rent or change jobs. It’s possibly not the first thing they think about. And three months isn’t very long necessarily for them to come to that conclusion that they need to tell me. And I don’t find my clients every three months to make sure I don’t miss a beat on any of that.

We might do the reviews annually, but that’s pretty standard, I imagine, for a lot of people in the room. And often you just miss the ability to utilise GIO because you’ve just not got in quick enough. And so that’s just a frustration sometimes that that the GIO can’t, if you’ve got clear evidence like it was mentioned, that something’s happened just because it’s been more than three months, the insurer can’t look at it.

So that’s a frustration. I know some of the policies as well, the age limit, I think, with some of these insurers you can’t use GIO above 54 or something and that’s still potentially 16, 15, 14 years of work for someone ahead of them. And it’s probably never been maybe more relevant that they need protection just because of increased risk and the fact that there’s these age limits as well on GIO, it’s just a lack of flexibility again, I think. But, yeah, from an adviser’s point of view, only having three months is tough.

Jack Southcott:

Just responding to Ian’s point about the GIO, I think the difference between increasing your benefit with a GIO and shortening your waiting period, largely comes down to underwriting. I’m not an underwriter myself, but I think if I spoke to our underwriting manager, she would tell me that the way we underwrite a policy on a 26 or 52 week waiting period is quite different to the way we would underwrite a day one, 1 week, or 4 week, because of the big difference in risk. So I think that’s possibly just one of the hurdles with allowing such a reduction in waiting period due to an employer change as opposed to allowing an increase in benefit. But I do think the employer change point that’s been made is a valid one, particularly in the sense of moving employers and being temporarily unprotected due to the tapering of sick pay. So I think that’s something that we can definitely take away.

Grant Western:

It’s just a point on the deferred periods and around the flexibility of them. So it’s kind of two different subjects, isn’t it? There’s around the available options in terms of deferred period, one subject, and then you’ve got the flexibility of moving the deferred period if somebody is in a role where their sick-pay scheme will evolve over their length of service. So I was just making the point on our plans, you can increase the deferred periods, simply a request if you like. You don’t need to do any more than ask for it, and it can be done within the realms of what we offer.

So in the event of decreasing, there is a short questionnaire that is available, in amendment form. It’s got four questions on it, medical questions. So for the decrease in where we’re increasing the risk that would be required. So maybe it’s potentially also about getting the awareness out that there are some elements of flexibility available. But that was the point I really wanted to make, that there is some flexibility and it’s not always going to need underwriting to take place on it.

Matthew Chapman:

I was simply saying, I understand that changes are challenging because I understand that they had a policy that pays after a week is completely underwritten or approached differently to a policy that pays out at three months, I recognize there’s a significant change in risk for the provider, because of the likelihood of someone being off work for a week versus three months.

However, when you look at pricing a plan up front or getting underwritten up front, the client pays the corresponding premiums accordingly. So I guess the point to make is, I understand is an increase or decrease or adjustment of risk. But surely the client pays the premiums accordingly and that’s how the risk is mitigated.

Jack Southcott:

I agree, Matt, but it may be more than just a premium. It may have impacted the terms of it. It may have impacted the underwriting decision that was made at the time.