Drinking is an ingrained part of Britain’s social and professional culture whether it be having a pint after work, going round to a friend’s for a party or popping down the pub at the weekend. First dates normally happen in bars while business lunches and corporate entertainment are notoriously boozy affairs. Let’s not even mention the office party. The financial services industry, like many others, is steeped in a drinking culture and while there is perhaps nothing wrong with alcohol playing its part, the question that is often overlooked is what impact does alcoholic consumption have on the financial products clients buy.
Mortgage payment protection insurance (MPPI) offers clients a safety net in the case of accident, sickness or unemployment and affords them the means to meet their mortgage payments should such a situation arise. Like any insurance cover it carries exclusions and some of these relate to alcohol, although this is normally an area which is skirted over with scant attention.
Binge drinking and alcoholism are often but wrongly associated primarily with the lower echelons of our society. Youngsters terrorising town centres on a Saturday night or blue-collar workers drinking after work are portrayed as the mainstay of our drinking population, but in reality the spread is much wider than that. Individuals in the most senior positions of UK life have their battles with the bottle as Charles Kennedy’s recent resignation so publicly showed, while those over-indulging on a regular basis are littered throughout the social classes.
The point here is not to moralise but rather to look at the impact an individual’s drinking can have on the financial products they buy and their ongoing effectiveness. In resigning his position Kennedy’s job loss was self-inflicted but he could easily have been ousted and plans were seemingly afoot to do so had he not fallen on his own sword. For the sake of argument the question is then what would have happened if he had an MPPI policy and had made a claim? Very little is the answer. MPPI will not pay out where an individual loses their job through disciplinary reasons or a failure to hit targets and if an inability to do one’s job results from alcohol abuse then payment of any claim will not be forthcoming.
Negating the insurance
This may seem fairly obvious in the black and white of the printed word, but does the average client realise that being sacked for an indiscretion at the office party or losing their job while they battle with alcoholism will most likely negate the insurance they have in place to cover their mortgage?
Things become worse when one looks at the unemployment and accident cover that comes with MPPI. What happens to the rugby player who trips on the kerb and breaks his ankle after a night out in the club bar, or the office worker who stumbles on the stairs after one too many and requires hospital treatment? Certainly these are accidents and certainly they are common but would they be covered by MPPI? Policies state that if accidents have resulted through alcohol abuse then the cover does not apply, but what constitutes abuse? Many would argue that a few beers after a game or a couple of drinks after returning from work is not abuse and is merely relaxing and enjoying ourselves, but there are no stipulated guidelines and the decision would be a judgment call by the insurers. In the case of an individual with no history of alcohol problems then insurers are likely to be lenient but for those who are struggling with an addiction the outcome is likely to be less generous.
Tighter net
How often insurers find out if an accident happened under the influence of alcohol is a moot point and certainly it is unlikely to be in the majority of cases. However, where alcohol has played its part in an individual’s claim relating to sickness, the net is much tighter. Pre-existing conditions are excluded from cover and while a heavy drinker may not have developed a full-blown illness when applying for protection, it is likely they will have had an inkling that they were vulnerable. Knowledge of high blood pressure which often leads to a stroke or ongoing chest pains may remain unmentioned on an application form, but should they develop into something worse and prove to be the demise of the insured then the cover in place may soon evaporate.
Policies are clear in stating that any omission, misrepresentation or false statement of material fact will lead to cover being void. But there are a number of problems here.
First and foremost many will ask exactly what conditions they have to declare. In reply they have to give warning of anything for which they have received treatment, medication or advice for in the previous 12 months including treatment that has been given to monitor an existing condition. It is likely that most drinkers have been told to reduce their consumption by their doctor, but how many state this on the policies they take out?
Broker embarrassment
For brokers there is the embarrassment of asking clients what they drink and how often. Many will feel this is an intrusion and certainly some clients are likely to be offended but the bottom line is that drinking is so widespread in our culture it is imperative to ask. Some may believe too much is being made of the impact of drinking but a look at the figures is frightening. On its website Alcoholics Anonymous states: “After smoking, alcoholism kills more people in the UK than any other drug. One adult in 13 is dependant on drink, according to government statistics.
“33,000 people die each year due to alcohol-related incidents or associated health problems. Alcohol is involved in 15 per cent of road accidents, 26 per cent of drownings, and 36 per cent of death in fires. A quarter of accidents at work are drink-related.”
Confronted with numbers like this, it is likely that every adviser in the country has a client with a drink problem, but how many realise this or have factored it into the insurances they have placed for them?
No one wishes to be unable to place cover for a client or offer them top-end premiums, but if they are paying for something which will not offer them the cover they believe they have bought, the policy is worthless anyway. For brokers not making the exclusions on a policy clear there is also the possibility their factfind will be deemed inadequate and open them up to possible client and regulatory recrimination at a future date.
But how often will insurers reasonably find out where claims have involved the abuse of alcohol? With accidents it is unlikely and can be easily covered up, although with unemployment and illness it becomes more difficult to hide. Any insurer contacting a client’s doctor will soon get a picture of their drinking habits and if these have been mis-stated then they can fear the worst. Again, where a condition which they are claiming for takes a long time to establish itself, but no mention has been made of it on the policy application when signs could reasonably have been expected to be showing, there will be problems.
A drug problem
It is not only alcohol that carries such exclusions. Drug and substance abuse create the same forfeits for clients. While to older generations the thought of large scale drug-taking in general society may seem unrealistic the reality is very different. Any study will show a rising acceptance and usage of drugs and the implications both professionally, socially and medically for users are stark.
Again there have been numerous high-profile cases involving the likes of Kate Moss, Michael Barrymore and Daniella Westbrook and while they may move in slightly different circles to the average man on the street, the drugs they have been associated with are readily available and an everyday part of millions of people’s lifestyles.
Financial protection and MPPI are about creating a safety net for clients to give them the confidence to take on large-scale debt and be able to pay for it if things get a little bumpy in their lives. They are not there to excuse bad habits or addictions, but the way in which they work and are sold must reflect the changing lifestyles that people have.
It is unreasonable to expect financial advisers to become medical consultants but when alcohol and drug abuse is so endemic in society it is perhaps reasonable for insurers to ask clients to state their intake on both accounts and underwrite accordingly. Indeed, in turn this should categorise clients better and ensure they are paying the right premium for the risk they offer. It will also make clients more aware of the risks they run in terms of their financial arrangements should they use and abuse such substances.
What is certain is these issues should not be seen as minor ailments that can be brushed to the side and ignored. If this is the stance taken by advisers and their clients,both will end up paying the penalty.
Simon Burgess is managing director of Britishinsurance.com
