New Way to Deliver Protection Cover to Mass Market
The over 50 plans we all know and love provide a lump sum upon death. They are marketed for all manner of purposes, including funeral cover, family cover, etc.
These products are (mostly) free of underwriting, making them especially easy to apply, and many have conditions to mitigate against the risks of early claims. This includes ‘survival periods’, where in the event of death within the survival period a return premiums payment is made, instead of the sum assured, or pre-existing conditions exclusions.
Pricing for these non-underwritten products is an important consideration for the actuaries, as the typical ‘select mortality’ post underwriting is irrelevant.
A select mortality table includes mortality data on individuals who have recently purchased life insurance. These individuals tend to have lower mortality rates than individuals who are already insured, due chiefly to the fact that they have most likely just passed certain medical exams required to obtain insurance.
If the effects of underwriting can be ignored when pricing over 50s-style products, it must also be possible for any age-cohort.
If we extend this line of thinking, we can determine how such products can be profitable – by applying certain conditions and terms to the product, such as survival periods, etc. In order to mitigate risks associated with deathbed applicants, either a survival period clause, or a ‘no-payment in the first 12 months’ condition, could be applied.
Another way of mitigating anti-selection is to construct the product with a decreasing debt, with the assured sum (payable) increasing over the first five years by 20 percent annually. The full sum would be paid in the event of a valid claim in year five (and thereafter).
Delivering an over 40s product to market without underwriting – marketed as school fees cover, or family protection cover (with a limited maximum sum assured) – could be the new and fast way to deliver protection cover to the mass market.
The protection market is evolving quickly and becoming increasingly commoditised. The fast delivery of quality products via omni-channel distribution, complete with full new business and comprehensive support, is critical.
Because these types of products are simple to understand and apply for, they are easy to market and to get to market quickly. They aren’t complicated to price, because underwriting can be ignored, and they can be profitable when certain conditions are applied. I haven’t given you over 40 reasons to consider this approach, but hopefully you are intrigued…