Insurance sham revealed: why you might be rejected
All insurers pick and choose the risks they are prepared to take on, but there are fears that more and more are rejecting customers outright, or loading premiums to the point where applicants have no choice but to turn down the quote.
The practice of only accepting the lowest-risk customers, known as 'cherry-picking', used to be all very well if you were young and in perfect health, didn't smoke, had a 'run-of-the-mill' job, lived in an area with low crime levels and had never claimed on your car insurance.
However, advisers say there has been a gradual increase in this practice in the last 20 years – even penalising customers who were previously seen as model policyholders.
This has been particularly apparent in the life and health insurance sector.
"It's understandable that companies will want to accept a higher proportion of healthier clients than their competitors, as this reduces the number of claims they will have to pay out and means they can remain cheap.
"But we are now finding that 50% of critical illness insurance cases are not offered standard cover, while the figure for income protection is even higher at 70%," says Alan Lakey, protection specialist at Highclere Financial Services.
"It's as though there is now no such thing as a 'standard' case."
Peter Chadborn, a director of independent financial advisory firm CBK Colchester, blames the shift towards cherry-picking on the price war in the insurance market.
"If consumers choose an insurance product from a price comparison site, they will go for the cheapest, so in order to compete, insurers have to become cheaper," he says.
"There's pressure to trim margins, so insurers want to have 'perfect' clients on their books. This is then self-perpetuating; once the insurer has a cheaper book of clients, it becomes happy doing business at the lower margins and so pushes prices down."
LIFE AND HEALTH INSURANCE
So what could make you a 'loaded' case? According to advisers, life cover, critical illness insurance policies and private medical insurance can all exclude or increase premiums for those who are currently in perfect health but who have suffered from a condition in the past or have a family history of medical conditions.
"In the majority of cases, a woman applying for critical illness insurance cover could find her policy is given an automatic loading of between 25% and 50% if her mother was diagnosed with breast cancer prior to the age of 50," says Lakey.
"This is irrespective of the fact that the applicant is fit and healthy, and has never shown any symptoms of breast cancer."
Even relatively everyday ailments such as high cholesterol, high blood pressure, stress and anxiety can now count against you.
"A 35-year-old woman taking out £100,000 of critical illness cover over 20 years would pay £30.51 a month with AXA, but if she had high blood pressure, she could see her premium increase by 50% to £45.76," says Matt Morris, senior policy adviser at protection broker LifeSearch.
Insurers are also increasing premiums for those with a high body mass index (BMI). "You can now be hit with a loading even if you're only slightly overweight," says Kevin Carr, chief executive of the Protection Review.
"The BMI threshold at which prices were hiked used to be nearer 40, but insurers may now load a premium with a BMI of 25 to 30 [the healthy range is 18.5 to 25]."
CAR AND HOME INSURANCE
For car and home insurance, cherry-picking is particularly rife when it comes to renewal.
This is why an insurance company might entice you in with an extremely competitive deal, followed by a far higher price when you ask for a renewal quote the following year.
With car insurance, for example, your postcode is a major factor at renewal, with insurers looking at potential loss ratios in your area, and pricing your cover accordingly.
Other factors include age, occupation, vehicle type, convictions and no-claims bonus.
"Each insurer prices its premiums individually and uses its rates not only to balance the risk it underwrites but also to influence the type of customer it attracts and wants to retain," says Will Thomas, head of motor insurance at Confused.com.
Some insurers have taken cherry-picking a step further and turned it into a business. Thomas says this is particularly apparent in the car and home insurance sectors.
"They have even gone to the point of creating specific brands, such as Sheila's Wheels and Diamond, which target female motorists as they are statistically a lower risk," he says.
Similar practices are also rife in the travel insurance market, with insurers offering less expensive policies to customers they deem healthy and less likely to claim.
"This greatly reduces the risk exposure and enables those insurers to cherry-pick the risks they are prepared to cover at their premium level," says Peter Hayman, managing director of PJ Hayman, a specialist travel insurance provider.
"But this makes it very difficult for older travellers and those with pre-existing medical conditions to find affordable cover."
To read our guide on beating insurers at their own game, click here.
Private medical insurance
PMI allows you to skip the NHS waiting list and arrange treatment at a time you choose. With most PMI policies, you pay a monthly premium (the older you are, generally the higher premium) and the policy will then pay out, up to specified cover limits and after an agreed excess, for any treatment you might need. Not all conditions are covered by PMI and you get what you pay for: the more cover you want, the higher your premium will be.
Critical illness insurance
This cover pays out a tax-free lump sum if you become seriously ill. All policies should cover seven core conditions: cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. You must normally survive at least one month after becoming critically ill, before the policy will pay out. Payouts are determined by premiums and premiums are determined by the severity of your illness, the less severe the lower the premiums.