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How Does Disclosing Mental Health Affect Insurance Prices?
People who disclose that they have a mental health problem when purchasing insurance products, often experience poorer outcomes or could end up paying around 27 times more compared to non-sufferers, according to Mental Health Policy Institute (MMHPI). The charity, which was set up by MoneySavingExpert.com founder, Martin Lewis, has suggested that urgent action is needed and has called on the FCA to investigate whether vulnerable customers are being overcharged. The charity has also urged firms to be more transparent about how decisions are made, to protect customers from financial harm.
The initial research examined 15 unnamed travel insurance providers to see how disclosing a mental health condition affected the premium offered. Additional surveys also concluded that similar issues are common across the industry, not just those associated with travel insurance. Some of the key findings included:
- Premiums were dramatically higher when customers disclosed a mental health problem. The research found that those suffering with severe depression were being charged three times more than someone without. In an online exercise, 9 out of the 15 travel insurers turned down the customer once they had disclosed that they had a severe bipolar disorder. The quotes provided by the remaining insurers also jumped to around 6 to 27 times more than the quote for a customer without a mental health problem.
- Insurers excluding mental health conditions from their cover, without reducing prices. 5 of the 15 insurance firms included exclusions for mental health conditions, without reducing the price of the insurance product. This means customers pay the same price for insurance products as non-sufferers, but are not covered for claims related to their mental health condition/s.
- Unclear information and complicated claims processes making it harder for people to find the right product. Nearly two-thirds (64%) of respondents reported that being unwell made it harder to compare policies, find suitable cover, and ultimately, make a decision. These problems were exacerbated by jargon-filled communications and overly complex claims processes, which left the customer unsure as to whether the product they were sold actually covered their mental health. This could put many customers at risk of financial harm.
Having insurance is meant to offer peace of mind, particularly when travelling abroad. However, for those of us who suffer with our mental health, the additional costs can often impact the financial choices we make on activities and spending, especially when the cost of insurance is more than the holiday itself. As a result, many people who have experienced these negative outcomes in the past make the decision not to disclose their mental health conditions to insurers in the future. This carries a significant risk if the lack of disclosure of key information is deliberate, as it may lead to the customer buying insurance that won’t cover them in the event of a claim for their mental health - they may not even be aware of this. This may leave the customer worse off than if they had made the decision to disclose the information or chosen not to take out insurance at all.
A spokesperson for the FCA states that:
"Firms are required to assure themselves, and us, that their pricing is not discriminatory, and they must not use data in a way that could lead to unlawful discrimination based on protected characteristics, in line with the Equality Act.”
The Equality Act does permit insurance companies to vary their pricing decisions and offers for people with health conditions, however different treatment must be backed up by reliable and relevant information.
With the implementation deadline for the Consumer Duty fast approaching, firms should already be making significant changes to ensure customers are being offered fair value. Most insurers are already showing a willingness to deliver better outcomes for their customers, however, there is still more that can be done.
Two areas of focus, as suggested by MMHPI, are:
- Driving fairness in how information is communicated with customers, and
- Increasing accessibility for people with both physical and mental health conditions
Greater transparency is needed into how decisions are made, as well as how that information is communicated effectively to customers, so that clients can understand and feel confident that the decisions made are fair, and they are able to find cover that best suits their needs.
Measures for accessibility should also be in place so that all customers, regardless of if they have problems with their physical or mental health, have equal opportunities as other customers to navigate the market and access the information they need to make an informed decision.
RWA has launched a Consumer Duty gap analysis to help firms implement the new rules and guidance. If you would like more information about this or require any assistance in relation to the new Consumer Duty, please contact your RWA Business Manager. Alternatively, get in touch via email at firstname.lastname@example.org or call 01604 709509.