Moratorium versus FMU: The Underwriting Debate

There are two main ways of underwriting private medical insurance (PMI) plans: moratorium and full medical underwriting (FMU). Before discussing the relative merits of each, it’s best to begin with a definition.

Moratorium: plans have a waiting period that must have elapsed before claims for pre-existing conditions become eligible for cover. The length of a moratorium can vary – at InterGlobal we have a 24 month rolling moratorium – but during that time, you will not be able to claim for treatment relating to a pre-existing medical condition. Pre-existing medical conditions are those for which you have suffered symptoms and/or received medication, advice or treatment during a specified period of time before the cover begins. A moratorium plan is said to be underwritten at the point of claim. This means that your medical history will be investigated when you make a claim, to establish whether the treatment that you are claiming for relates to a pre-existing condition.

Full medical underwriting (FMU): cover is based on your medical history. You will be asked to fill in a medical questionnaire when you apply for a plan. The insurer will use this information to decide if or how they will cover you. For example, they may choose to deny cover altogether, they may cover all treatment, they may impose a moratorium on some or all pre-existing medical conditions or they may permanently exclude specified pre-existing conditions from cover. FMU plans are underwritten at the point of application.

Both types of underwriting are available in today’s PMI market – domestic and international – but which is best?

Moratorium underwriting – the advantages

A big advantage of moratorium underwriting is the simplicity of the application process. There is no medical questionnaire to fill in and, because a blanket exclusion is applied to all pre-existing conditions for all members, applications are unlikely to be rejected. Cover can start as soon as an application is received by the provider as there is no need to establish what will and will not be covered – this is defined by the plan benefits, terms and conditions.

For the provider, moratorium underwriting means a simpler administration process.

So, moratorium underwriting can be an advantage if you do not have any pre-existing medical conditions. But what about if you do?

Pre-existing conditions and moratoriums

This is where it gets a bit more complicated. Under a moratorium, there is no permanent exclusion of pre-existing conditions. This is obviously an advantage if you have a re-occurrence of a condition after the moratorium has elapsed. However, many pre-existing conditions need ongoing medical treatment. In these cases, you are unlikely to be clear of treatment and symptoms for long enough to satisfy the moratorium. For example, in order to satisfy InterGlobal’s moratorium this would mean at least two years free of treatment or symptoms. If this is an unlikely scenario, a moratorium does not seem like such a good option, but can FMU help you?

Pre-existing conditions and full medical underwriting

With FMU, the insurer is fully aware of your medical history before the plan is sold. This means that they have more flexibility and control over what they will cover. If they choose to, they can cover pre-existing medical conditions from the start of the plan.

It also means that they can choose to impose a moratorium or to permanently exclude treatment for all or specified pre-existing conditions, or decline to offer any kind of cover. And unlike moratorium underwriting, you must fill out a medical questionnaire and may have to wait while the insurer makes their decision about what they will offer.

An aside: the small print

All brokers, advisers and customers should be aware that all PMI cover – whether underwritten on a moratorium or FMU basis – will be subject to the provider’s terms and conditions. This means that certain types of conditions and treatments will always be excluded from cover. This will vary from provider to provider and can be found in the plan rules, which should be read alongside the table of benefits for the plan.

Advantages of FMU

Full medical underwriting has a number of other advantages over moratorium underwriting.

FMU sets out clearly what is and is not covered by your insurance. It can be difficult to explain how a rolling moratorium works and FMU can avoid this.

Because your medical history is already known, and the conditions that will and will not be covered are already specified, claims processing can be quicker. This is one of the potential drawbacks of moratoriums for both providers and members. Under a moratorium, your medical history may be investigated and a doctor’s report requested when a claim is submitted in order to establish whether a condition is pre-existing. This could mean a longer claims process for the provider and a potentially longer claims settlement time for you.

Claims fraud

This can also mean claims disputes and fraud. If the medical history is not investigated until a claim is made, the insurer will not know whether a condition is pre-existing until this point. In some cases, members may not seek medical help until their moratorium has elapsed, even if they have symptoms before this time, or they may consult a new doctor who will not be able to give a full medical history.

However, the FMU claims process is not always clear cut either and disputes do arise. For example, if a client has not declared a condition on their application and then make a claim, the claims assessors would need to investigate whether that condition could have been present before cover started. Failure to declare a condition on a PMI application constitutes fraud.

Claims fraud – whether the plan is underwritten on a moratorium or FMU basis - is negative for everyone: insurers and providers because it increases the number of claims that are paid; customers because it increases premiums; and the insurance industry in general because premium increases due to fraud can damage the reputation of the industry.

Transfers

FMU will often work in your favour if you are transferring from one insurer to another. If your plan is underwritten on a FMU basis with your old insurer, you may not want to lose cover for specific conditions when you switch to the new insurer. If the new insurer will accept you on a “Continuation of Personal Medical Exlcusions” (CPME) basis, any conditions that are already covered will continue to be so. You will be asked to fill in a short medical declaration when you apply to the new insurer and to provide details of your current cover.

Many insurers will accept transfers on a CPME basis, even if their standard underwriting is on a moratorium. Sometimes there will be a premium loading so CPME will not be beneficial if you do not have any pre-existing conditions.

So which is best: moratorium or full medical underwriting?

The simple answer is “it depends”. As outlined, both have their advantages and disadvantages. Your needs will dictate which underwriting will be best for you.

A moratorium has advantages for people with no pre-existing medical conditions as the application process is simpler and quicker and there should not be any issues arising at claim time. It can also be better for those unable to cover their pre-existing conditions with an FMU plan as, subject to the terms of the moratorium and other terms and conditions of the plan, these conditions may become eligible for cover after the specified waiting time has elapsed.

FMU can be more advantageous for those with a more complex medical history or who want a specific condition to be covered as there is the potential to cover pre-existing conditions from the start of the plan, albeit for a price, and for those switching from another insurer.

The “best” option for most people is to investigate the market fully: read the small print, understand the offering and work with an insurance broker or independent financial adviser to get impartial advice.

For the future, I believe that good customer service will mean offering a choice of underwriting. This would make sure that you get more choice and the cover you expect, as long as the choice is delivered with sound, quality and unbiased advice.

Moratorium versus FMU: a summary

Moratorium – advantages	Moratorium – disadvantages
Simple application process Policies set up and administered more quickly Can keep premiums lower across the board No premium loadings due to medical history No permanent exclusion of all pre-existing conditions	Needs to be explained properly – you need to know what will and won’t be covered after a moratorium has elapsed Rolling moratorium can be difficult to explain and administer You may ultimately not be covered for everything that you were expecting Healthy people are not rewarded by lower premiums Can take longer to process claims Could mean more claims fraud and disputed claims
FMU – advantages	FMU – disadvantages
Will know from outset exactly which conditions will or won’t be covered More flexible – insurers can impose a moratorium on some conditions, cover some conditions and completely exclude some conditions if they want to Less time taken to process claims Less disputed claims Premiums may reflect state of health and be lower for healthy people Good for transfers as you get continuous cover	Longer and more complex application process Application may be rejected or premiums prohibitively high You may have to pay for a medical report from your doctor before you can get cover Pre-existing conditions may be permanently excluded from cover Time may be wasted by you and the insurer if the risk turns out too high to insure