Underwriting clients and disclosing drug use

The chief underwriter of a large life office explains the challenges advisers can face when finding policies for clients who have engaged in drug use.

What challenges do advisers face when trying to write clients who are prior drug users into risk insurance policies? 

Drug usage is a very topical and sensitive subject which presents a real challenge for all advisers and insurers when they are faced with this disclosure from clients. Potential complications associated with drug usage can include underlying mental illness, high-risk behaviour and social instability to name a few, so drug usage in isolation, whether current or historical, requires a multifaceted approach and detailed attention to the overall risk profile of the client.  

Is there a set amount of time before drug use will no longer be a hindrance to the cost of a client’s policy?
The overall implications - including time thresholds and impact on cost, or even acceptance of risk - for a policy really vary by many factors, including actual drug, age, degree of usage, and whether it is used in conjunction with other drugs. The impact can range from no impact, through to total decline, loaded cover, or waiting periods of 5 or 6 years of non-usage or more before any kind of cover can be considered.

Is drug use, especially among younger Australians, presenting a challenge to their getting adequate, yet affordable, insurance cover?
Recreational drug use is certainly a risk factor, as is tobacco use and alcohol consumption. Regardless of whether you believe alcohol and drug consumption is increasing or decreasing, any factor which makes cover more expensive or even unattainable has the potential to exacerbate the underinsurance problem and therefore would be a concern for the whole community
Do certain drugs lead to heavier loadings or lead to higher premium costs than others?
Definitely. Depending on the type of drug, degree of usage and dependency, and other health considerations, some drugs can be more of a risk factor than others. As an example, occasional cannabis use is treated differently to a dependency on intravenous opiate usage. Usage of multiple drugs also increases the risk factors. The implications range, again, from complete decline to loadings of up to 200 per cent or more through to standard rates.

Are there specific products that can help advisers provide an insurance solution for clients with a history of drug use?
Not really. The nature of the comprehensive products offered in our market coupled with the complexity of underwriting drug usage makes it difficult to qualify the suitability of one product over another. In saying that, when a heavy loading like plus-200 per cent is able to be offered this is usually for death cover only with living benefits (TPD, trauma, IP) being unavailable. We're also seeing a shift in traditional product design to now excluding drug use in the policy documents, which means the client will be unable to claim where there is a history of drug use.

Underwriting clients and disclosing drug use
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