In this latest blog, our Director and Head of Protection Barry Jones explains why up-to-date knowledge is paramount when completing the best outcomes for our clients.

The business of life insurers can be reduced to two key areas; the quantification and then mitigation of risk. When setting out premiums, the two initial determining factors (excluding level of cover) are age of the insured at the outset and smoking status.

With up to 78,000 people per year passing away in the UK every year from smoking tobacco*, it is readily apparent why an insurer would be reliant upon smoking status to accurately assess the risk of a client claiming upon a plan. Smoking is clearly evidenced as the direct cause of many cancers, including 70% of all lung cancer cases, coronary heart disease, heart attacks and strokes, COPD and other chronic lung disease.

As the harm caused by tobacco smoking became evident, the level of smokers gradually reduced over time, nudged by increasingly high taxation, education campaigns and the smoking ban in public places. In 2021, in the UK, there were a recorded 6.6 million smokers in the UK, equating to 13.3% of all adults over 18. Since records started in 2011 this is the lowest recorded percentage.**

Compared with 2011, the percentage of adult smokers has dropped substantially (from 20.2% to the aforementioned 13.3%).

The trend between gender is relatively consistent, with men being approximately 30% more likely to smoke than women. Interestingly, the highest proportion of smokers is found in the young, with 15.8% of 24 to 34-year-olds being recorded as smokers, with the rate bottoming out at just 8% for the over-65s. Perhaps to be expected, there is a linear correlation between education level and the likelihood of being a smoker, with those with no qualifications hitting a high level of 28.2% smoking rate, and this dropping to just 6.6% for those educated to degree level or equivalent.

What is a ‘smoker’?
While this appears to be a clear-cut question, there are subtle differences between insurers that it is worth advisers being aware of, to be able to effect best advice. Generally speaking, anyone that has smoked a cigarette, cigar, pipe, or used any nicotine replacement devices including e-cigarettes, patches or even gums within the past 12 months will be considered a ‘smoker’ when it comes to insurance rates.

The industry has changed with relation to underwriting ex-smokers over the past five years, following higher claims rates for ex- smokers and the clear and present danger that ex-smokers may relapse and take up smoking again. Where the traditional 12- month period still stands for some insurers, there are other insurers who increase their premiums for ex-smokers for varying periods of time after quitting, generally ranging from 12 to 60 months.

It clear that an ex-smoker of many years will present with a higher risk of claim than a lifelong non-smoker, and differentiating between these two risks has enabled some insurers to present more attractive premiums for those lower risk clients. After a year of stopping smoking, a client’s risk of a heart attack will have reduced by 50%, and the risk of lung cancer will have dropped by the same amount, compared with a smoker, after 10 years.***

Understanding, when a client presents as an ex-smoker, which insurer will offer standard rates, and which will offer increased premiums upon application, is the key to a great client experience and high-quality advice in this area.

What about vaping?
The use of vapes/e-cigarettes has certainly played a big part in helping ‘traditional’ smokers quit cigarettes, and while there is not a huge amount of data available yet, most medical professionals concur that the risks of vaping, while not precisely quantified, are certainly far lower than smoking tobacco.

As the number of cigarette smokers has reduced, the industry has seen considerable growth in those choosing to vape. In 2021 reported daily vape users increased to 4.9% from 3.8% the year prior, together with 2.8% reporting occasional use. These combined users represented four million individuals in the UK.

As a mechanism to facilitate the successful quitting of tobacco smoking, vapes have been an undeniable success and the cessation rates evidence this. Where the vaping industry is more problematic, however, is in its attraction to younger adults who would otherwise not be likely to be exposed to nicotine products.

With certain insurers, vapers can be divided into two camps; those who vape nicotine and would be classed as a smoker, and those who vape non-nicotine products and can access standard rates. This does not apply to all insurers (See Table 2) and care needs to be taken to place these cases with a precise understanding of these differences.

The exceptions to the rule
As with all things protection-related, there are always exceptions to the rule, and quirks or deviations between insurers that it is worth being aware of. While the definition of a smoker is very closely matched between insurers, there are a couple of exceptions to be aware of. AIG, by far, offers the most generous smoker definition. They view cigar smoking very differently from more habitual cigarette smoking, and will allow individuals to smoke up to 12 cigars per year while still permitting non-smoker rates. This needs to be run via their underwriting, but has been a lesser-known feature of their policies for a long time.

When approached for comment, most other insurers did not share this viewpoint and would class anyone who had smoked a cigar within the past 12 months as a smoker. The exceptions here were Liverpool Victoria and Aegon, who both stated that while it is not their exact policy, they would consider non-smoker rates for someone who had smoked a single cigar. As ever with life insurance, as the medical data changes, and claims levels shape insurer experience, the underwriting will change and adjust to fit the risk and marketplace. Keeping an up-to-date knowledge in all areas is key to effecting the best client outcomes and offering best in class advice.

For a general chat call the protection team on 01270 620555 or click here to get a quote.

SOURCES