Everybody is insurable, for a price. It’s an old truth in the insurance world, and one that your clients who enjoy high-risk summer activities — such as flying, skydiving and rock climbing — are likely to face if they want coverage.

Many insurers have developed specific questionnaires for a variety of “hazardous” sports, says Ken Hunter, partner at Hunter McCorquodale Inc., a special-risk general agency in Toronto. The questionnaires are used to gauge the degree of risk a client is taking and enables the insurer to rate the risk.

Depending on the extent of the risk, life and disability insurers may offer normal coverage, charge an extra premium or exclude coverage of the specific sporting activity.

A client’s policy could be rated at four times the normal amount, says Jim Bullock, registrar of the Peel Institute of Applied Finance in Toronto. When a new client tells Bullock about regular involvement in a hazardous sport, he telephones several senior underwriters from a variety of insurers and gives them “a thumbnail sketch” of the client’s insurability.

“They’ll decline — or tell me what they can do for the client,” says Bullock. “That way, before going through the application process, I have a picture of what my client is in for.”

The approach cuts down on post-application sticker shock or the frustration of being declined. However, not all advisors have the ability to pick up the phone and talk to senior underwriters, admits Bullock, an industry veteran. Therefore, he suggests, the managing general agent could do so on the advisor’s behalf.

Either way, the advisor brings a well-informed approach to the table when he or she meets with the client.

Some advisors use another technique involving less immediate contact with underwriters. They file a trial application for the client and leave out his or her identifying particulars. Trial applications can be made to several underwriters for their reactions.

“It’s never a bad idea to do a trial app,” says Hunter. A lot of times, he says, an advisor won’t find out that a client is into a hazardous sport until after the client is sold on the idea of buying a policy. Once the application process has begun, the advisor will find out when he asks a question found on the insurance application, such as: “Do you participate in flying, skydiving or other hazardous sports?”

Hunter says that 99 out of 100 advisors won’t know what to ask about the hazardous sports in which their clients are involved when the advisors do find out.

He discourages advisors from filing an application that simply acknowledges that the client has his or her pilot’s licence, for example. The insurer needs to know more details about the client’s flying activities in order to assess the risk and give a fair premium rate.

Hunter suggests obtaining blank questionnaires that the insurers use to determine risk levels. Using one as part of the trial app will help the advisor “get a pretty fine idea of how the risk will be underwritten,” he says.

One of the downsides for clients engaged in hazardous sports is that providing a policy that excludes such activities presents less trouble for insurers than risky travel, says Hunter. With travel, say insurers, the potential risks are unknown. With hazardous sports, the risks are well understood by both insurers and clients.

And insurers can offer life policies that exclude a specific hazardous sport without worrying that they may get sued down the road. If a client dies while travelling, grieving families are more likely to bring lawsuits, despite an exclusion clause, because the risks and coverage can be construed as more ambiguous.

Nevertheless, an exclusion doesn’t mean your client won’t be able to get insurance. If your clients’ needs can’t be met by one of the regular insurance companies, the next step is to deal with a company providing special-risk insurance, such as Hunter McCorquodale.

“If people can only get policies with exclusions, there are ways to cover the risk,” says Hunter.

For example, Hunter McCorquodale just insured a corporate executive who flies his own plane as a hobby. He took out a $2-million accidental death and dismemberment policy, which is augmenting his regular life and disability insurance.

Another Toronto-based company providing
similar coverage is William J. Sutton & Co.
Ltd. “We get called when a client enters into the special-risk arena,” says Greg Sutton, executive vice president. The company began in 1978, specializing in insurance for professional athletes and teams. It continues to provide specialized products including coverage against career-ending risks. The firm has also expanded into underwriting a diverse range of clients and their needs. It doesn’t deal directly with clients, Sutton says. Instead, it offers its products and services through agents and independent brokers.

@page_break@Some advisors may wish to avoid presenting clients with the high cost of special-risk insurance and avoid calling companies such as Hunter McCorquodale or Sutton & Co.

They may think, says Bullock, that if a particular insurer doesn’t ask questions about a hazardous activity, then they can safely file a client’s application with the company.

In Ontario, as in other common-law provinces, says Bullock, provincial insurance legislation requires that all “material” information be disclosed to the insurer. “Just because a company doesn’t ask, [that] doesn’t mean the agent doesn’t have to tell,” he says.

If a client’s beneficiaries successfully sue an insurer because an advisor has not disclosed information told to him or her by the client, says Bullock, then the insurer will come after the advisor to recoup the legal losses. Most errors and omission policies don’t protect advisors against insurer lawsuits, he adds. IE