The UK’s Life Insurance Industry and Consumer Protection
The recent extension to the ban of using genetic tests to define life-insurance policies has put the spotlight on the UK’s insurance market, and what standards are established to protect the consumer.
The Association of British Insurers stated that the genetic-test moratorium, which was due to expire in 2011, has been extended until 2014. However the industry will review the ban again in November 2011. This latest extension is the second since the ban was first introduced in 2001.
ABI director general Stephen Haddrill said the moratorium worked for customers.
“It means people can insure themselves and their families, even if they have had an adverse result from a predictive genetic test,” Mr Haddrill said.
“The moratorium has proved effective since its introduction in 2001 and can now continue,” he said.
Although generic testing is banned from risk evaluation, up to a certain cover, there is still some genetic information collected by insurance companies. Most insurance companies require customers to disclose any family history of illness and/or disease before being insured.
A poor family-medical history does not mean a customer is uninsurable but it may have an impact on the premium required when buying life insurance. If a client falls into a high-risk group they can reduce their personal risk through regular check-ups and testing programs. For example, some insurers might reduce the risk profile of a woman with a family history of breast cancer if she has regular mammograms.
Maintaining a testing program can reduce insurance premiums only if the insurer agrees, since there is no standardized assessment of using preventative treatment or testing.
Standardization in the insurance industry is beneficial to both the consumer and provider. The ABI and the Financial Services Authority (FSA) are two organizations that establish and assess these standards within the industry. FSA states it has four objectives under the Financial Services and Markets Act 2000. These objectives are to maintain market confidence, promote public understanding of the financial system, securing protection for consumers and fighting financial crime.
There are two ways standards have been developed in the insurance industry. The first is direct legislation from government, such as the genetic-test moratorium. Direct legislation supports the industry’s reputation and protects the customer. The second is through educating the customer forcing change in the marketplace, such as the discounting for regular medical examinations.
While discounting is not available in all policies, some life insurance providers are discovering commercial benefit from providing these discounts. Although more subtle, standardization through the marketplace, rather than through legislation, is the more common standardization tool.
Marketplace standardization is a more favourable outcome for companies because it remains flexible. Often the threat of direct intervention is used by authorities if standards start to slip. By constantly reviewing services the authorities have justification to intervene if consumer interests are not maintained.
Standardization also enhances services and is a necessary ingredient for insurance comparison websites. To effectively compare policies there must be some standardization to ensure accurate results.
In general insurance, such as house and car insurance, standardization is commonplace; hence comparison websites are mainly focused on this insurance market. The websites are able to deliver accurate quotes to customers without many conditions attached.
Long-term insurance, including life insurance, is a different matter. Usually products are not standardized and there are many options and products available under the umbrella of life insurance.
Because of these differences most insurance comparison websites will either, provide life-insurance quotes only after consultation or make broad assumptions about the customer. In both cases the website will refer your enquiry to a ‘broker’ to make a detailed assessment after refining the customer’s details.
The FSA has warned customers to ensure they know what service a comparison website is offering before requesting quotes.
According to a study conducted by the FSA in May, insurance comparison website needed to take care to disclose any necessary information about their service to the customer.
“Consumers should be provided with appropriate information about a policy in good time and in a comprehensible format, so that they can make an informed decision about the purchase of insurance,” the report stated.
“For example, in one case neither the broker nor insurer provided any information on the coverage or features of the policy before the conclusion of the contract. In this case, the consumer would only obtain information on the policy after committing to it.”
Despite rapid changes in the insurance industry, the check and balance are in place to ensure customers are protected and standardization of the process has been made where required.
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July 17th, 2008 at 2:29 pm
The situation is still good, i dread the time when insurance companies will use genetic information for profiling before giving insurance