What to do about smoking is a hot topic, not just in insurance but in public health and politics. With Nigel Farage promising never to go to a pub again if the government ban smoking in beer gardens, there will certainly be plenty of noise around this in the coming months.
In the world of insurance, we have seen a lot of smoke (and possibly one or two mirrors) around the topic in recent years. The evolution from a once simple smoker or non-smoker divide to never smoked, time since last smoked and non-smoker splits has been compounded by the transformative changes to public behaviour brought about around vaping.
The numbers of people smoking cigarettes has reduced over the last decade has reduced steadily from about 20% to 12%. Iress data shows that the number of people applying for income protection (IP) as smokers has remained stable at 15%. This is largely driven by the continuing categorisation of most vapers by most insurers as smokers. It highlights the difficulty advisers may have in explaining smoker terms to people who do not consider themselves to be smokers.
Even before public health, nicotine product and insurance pricing, IP stood out in its relationship with smoking. Unlike for term assurance and critical illness (CI), there is a significant split between insurers who offer smoker and non-smoker rates for IP and those insurers who offer a single rate.
Nicola Huxley, director, Sphere Financial Services, comments: “I often use the mutuals to offer smoking clients non-smoking rates for IP, normally adding a much smaller level of CI than normal and as a result holding better value on premiums.”
Just as I have no doubt Nigel Farage will be in a pub again, I am confident that the approaches insurers take in this area will only continue to segment further. In time more differences around vaping are likely to have a more significant impact on all products, and for IP the differences will remain.
It would be reasonable for advisers to have distinctly mixed feeling on this – on the one hand more diversification enables greater choice for clients, on the other an extra layer of difference can make it even more complicated to link together the best product, price and overall offering for an individual.
Nicola confirms that “often there is not much difference in the end on premium as those not taking smoking into account will be more expensive for some professions and it’s hard to hit a sweet spot for that.”
All of this makes the role of portals and comparison services ever more crucial in assisting advisers in this space. To that end, Iress have recently updated their questions around this on their application to enable quotes given to more accurately match up to premiums that will be paid.
Warren O’Connell, head of business development, Iress, notes: “Appreciating how important it is to quote accurately and assist our customers in showcasing premiums that more relevantly reflect their clients; The Exchange is the first sourcing platform to introduce ex-smoker questions to the journey.
“The new questions enable insurers to provide more tailored and precise premiums that accurately reflect individual risk profiles. This promotes greater accuracy, fairness and transparency.
“In the first half of 2024, 85% of all lives entered on the system had the smoker question set to ‘no’. Within a week of launching we found that out of all ex-smokers, 67% had smoked in the last four years – meaning that providers who had previously made assumptions the price would have otherwise changed during the application process”
Getting the smoker rate right at the first opportunity is vital both identifying appropriate insurers and managing client expectations. It is good to see this innovation enabling that to happen more simply today and in the inevitably complex future in this area.
