Friday, 19 February 2016

Issues to consider when advising clients - moratorium underwriting method

As readers of the blog will know I work closely with professional introducers to my business, mainly IFA's, Accountants and General/Commercial insurance brokers. There are a range of issues that crop up when I am advising them and their clients on various technical and sales issues around medical insurance.

An interesting one came up yesterday for a client who had inadvertently fallen foul of the 'moratorium' clause on a new medical insurance plan set up 12 months ago.

The client had needed to make a claim and hadn't realised that the condition they had, as a pre-existing problem prior to the start of the cover would not be covered.

This is the problem with moratoria and despite the terms of the mori being pointed out twice in my report to the clients it is something that people, usually by mistake, end up missing.

Broadly the moratorium underwriting method says that in the five years prior to an application any existing medical problem will be excluded. Then moving forwards, once the plan has commenced if the condition remains in abeyance (with no symptoms, advice or treatment) for a period of two years the problem will come back into cover in full, permanently.  (This technically is a 5-2-2 rolling moratorium and some insurers offer slightly different variations on this same theme but the above is as near to 'standard' as one gets in the UK PMI industry).

The dual purpose of a mori is to offer the client a quick way to get on cover with the minimum of form filling and for the insurer it offers almost identical underwriting/risk profile to a standard fully medically underwritten application. This is why of course with one or two exceptions a new business case set up on underwritten or mori basis will be priced by insurers at the same level.

The potential problem for the client here, despite the warnings by an adviser like myself, is that either they don't remember when the last flare up of a medical problem was or they don't understand that a linked or associated medical problem could easily fall foul of the mori rules and end up with a declined claim. My advice to clients is, at underwriting stage on a new case just to tell me everything that they have wrong with them and with 22 years of experience I can usually give solid guidance as to what will and will not be covered. Any gaps in my knowledge can easily be filled with a call to the insurers underwriting department for clarification on a specific condition or scenario the client might want to explore based on their medical history or sometimes, imagination.

Either way, getting advice before signing on the dotted line is of course vital and another key reason why I would always suggest that a protective purchaser of medical insurance speaks to an independent adviser like myself rather than go direct to an insurer.

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