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UK insurers, consultants produce de-risking guide as medical underwriting gains ground

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Insurers and advisers in the UK pensions sector are putting together a guide for trustees and sponsors to help them decide whether or not to use medical underwriting when buying bulk annuities.

JLT Employee Benefits,  Partnership, Aviva, Hymans Robertson, Legal & General and others said they plan to produce a “robust guide for the industry”, which will aim to formalise and improve existing industry standards.

The move has been prompted by the arrival of new insurers in the market, ready to look at the health and lifestyle characteristics of individual scheme members when setting premiums, the group said.

Margaret Snowdon, director of JLT Employee Benefits, said: “With an increasing number of businesses keen to explore using medical underwriting as part of their de-risking strategy, now is the time for the industry to step up and develop a robust guide to ensure good practice.”

The sector needed to develop an atmosphere of trust, she said, by highlighting potential benefits and risks as well as setting out what companies, advisers, trustees and consumers could expect from the process.

“We’re trying to make sure the document gives a fair and balanced view of medical underwriting compared to a conventional approach,” said Mike Edwards, head of product development at L&G in the bulk annuities business.  

“In some cases it would be the right thing to do in other cases it wouldn’t,” he said.

One of the potential advantages of medical underwriting is that it might result in a lower premium, he said.

But trustees and sponsors had raised concerns that if they did opt to have individual scheme members’ health and lifestyles assessed in order to set annuity prices, the price could end up being higher as well as lower than it would otherwise have been, he said.

And once a scheme had made a detailed enquiry about medical underwriting, if it then decided not to go ahead with the deal, other bulk annuity providers might take this as a sign that the membership was in better-than-average health and decline to quote. 

Other firms behind the Good Practice Guide are CMS Cameron McKenna, Just Retirement, Law Debenture and LCP.

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