It’s reassuring to see an aggregator recognise the ethical issues that arise for the insurance sector from the way in which underwriting assumptions are handled. In a recent Post Magazine article on aggregator pricing trends, Tom Cooper of Igo4 saw the use of assumptive answers as “one of the next battlegrounds”.
Their use could be described as dangerous at best, particularly on certain product lines, and many insurers have stories of costly claims resulting from the misinterpretation of material facts between customers, price comparison sites and the transfer of that data to a brand’s own site.
He went on to identify the assumptive inclusion of bundled ancillary products as a particular concern in relation to how the websites of both aggregators and their participating insurer brands are configured.
I think it’s important to look at the ethical issues raised by underwriting assumptions and purchase assumptions separately.
Underwriting assumptions have some role to play in how consumers engage with the insurance market. They can help simplify an often complex process and are a byproduct of a market whose energy and diversity helps many consumers access affordable premiums and obtain cover for unusual risks. I believe consumers will be prepared to live with underwriting assumptions so long as three conditions are met. The first two: necessity and transparency – they should be kept to a minimum and presented in an open and upfront manner. And thirdly, if an assumption doesn’t fit, the consumer should be given a clear pathway to accessing quotes that do reflect their particular circumstances.
So is this actually happening? To be honest, I’m doubtful: I’ve come across some pockets of good practice, but the overall picture is poor. This post from 2012 identified ethical issues from the sale of household insurance. Insurance providers (aggregators, insurers and brokers) need to draw up common standards for the use of underwriting assumptions and demonstrate a commitment to retaining their benefits while containing their abuse.
Purchase assumptions, where you have to opt-out of buying the cover extension, are very much ‘dangerous at best’. Their necessity is often questionable and their transparency is usually very low. I’ve come across automatic extensions of cover pre-ticked and hidden in the main policy’s terms and conditions – if nothing else, it showed me that this was an insurance provider I didn’t want to do business with. Historically, opt-out covers such as motor legal expenses were priced much lower than the same cover offered on an opt-in basis, but that’s no longer the case. All too often, opt-out covers are priced to achieve the profit that has been pared from the more visible core cover premium.
The FSA has set out clear standards for purchase assumptions in its Insurance Conduct of Business Rules and should apply them aggressively, backed up with some naming and shaming.