How to reach the polar extremes of the insurance market

How to reach the polar extremes of the insurance market

In my previous article Survival of the Fattist I talked about some of the challenges of insuring customers with pre-existing physical disabilities or conditions. With an increasingly rich dataset to base underwriting decisions on, such as biometric data from wearables, we are likely to see an increase in the premium loadings applied to such customers while reducing base “healthy person” premiums.

In this piece I want to talk about how insurance might change for those with a history of mental illness. In my twenties I suffered two episodes of bipolar disorder, an acute but thankfully short-term illness whose cause is still not fully understood by medical experts.

My condition is well managed now through a combination of medication, lifestyle and exercise, but if I look for any kind of life insurance, income protection or health cover I am reminded that to the outside world I am not like other people.

Last year, ahead of a house move, I talked to a broker about additional life insurance. The initial quote looked reasonable, but the underwritten premium – equating to several thousand pounds over my lifetime – made me rethink the value of taking out the insurance. Having gone 20 years unaffected by the condition, I contacted the insurer to ask why the premium was so much higher.

The reply was a patronizing letter suggesting I go and talk to my doctor to find out more about the illness. What I really needed was a sensitively worded letter detailing the reasons for the higher premium, and an option to tailor my cover with some exclusions.

It’s not just life cover that presents issues for customers with a history of mental illness. I pay more for income protection even with medical exclusions, and my health cover excludes not just bipolar but any form of mental illness. But there is no more a link between, say, schizophrenia and bulimia than there is between heart disease and arthritis. It seems that, given the still huge gaps in scientific understanding of bipolar, some insurers prefer to take the easy approach and apply blanket exclusions for illnesses which are not necessarily correlated.

We’re living in an era where companies, health services and other government organisations are collecting unprecedented amounts of data about us. Wearable devices clearly aren’t going to help quantify mental health risks (and there are no biological tests to measure or diagnose these illnesses) but I can foresee a time when such risk factors can be measured based on behavioural analysis. Artificial intelligence (AI) is already being used in some limited areas of mental health treatment. Chatbots such as Woebot and Tess offer cognitive behavioural therapy; Ellie, an avatar designed to help diagnose post-traumatic stress disorder in war veterans, can recognise non-verbal cues such as facial expression and posture.

Clearly these are still early days in the development of such technologies. But the medical profession and the insurance industry are both interested in the same ends: minimising the number of people who reach mental crisis point and reducing the cost of care for those who do. As a result we will eventually be able to use AI technology to analyse verbal and behavioural cues and assess individual risks, giving medics better diagnosis tools and insurers the ability to create protection insurance that more fairly balances their interests with those of their customers.

In the meantime, NHS data show that across a range of measures, mental illness is on the rise. The charity Mind advises customers affected to insure via specialist brokers. Shouldn’t it be standard practice for all firms to offer flexible protection insurance with add-ons and policy excesses, similar to the car and home insurance model? By coupling this approach with communication that’s both transparent and sensitively worded, insurers can be more confident they are meeting the FCA’s expectations on the treatment of vulnerable customers, rather than pricing them out of the market.

This article was first published in Actuarial Post, March 2019

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