At a recent critical illness (CI) conference, it was observed that a lot of the individual market's underwriting problems could be reduced by using a low free cover limit (e.g. £50,000). Would bringing this into line with group business be helpful to you?
Roger Edwards, Bright Grey and Scottish Provident
The slump in the mortgage market is a major contributory factor to the decline in CI cover sales over the past few years.
But cost and the perception that it is very expensive has also been an issue, particularly in a recessionary environment where many people are struggling to make ends meet.
While the cost of life cover has been reducing, CI rates have been much slower to fall.
As a result, the gap between the two has become so wide that people are put off.
They might be happy to spend £15 per month on £200,000 of life cover, but will recoil from a premium of £75 for an equivalent amount of CI cover.
Some advisers get around this by using menu plans to create a combination of life cover with a smaller amount of CI cover, thus offering the customer a choice of a premium between the two extremes.
This can be a very cost-effective solution and the approach was applauded at the recent Future of Critical Illness Summit hosted in London by Bright Grey and Scottish Provident.
The message was quite strong: adding a small amount of CI to life cover could become almost a formality.
But delegates also mentioned that a smaller CI amount would still be subject to full underwriting and might hold up the processing of the life assurance element, which tends to happen more quickly.
In order to encourage more take-up of smaller amounts of CI, the industry needs to look at simplifying the underwriting in such cases.
Perhaps by aligning the evidence requirements to match those of the life cover. Is this a challenge that the industry is up for?
Phil Brown, Zurich UK Life
Any protection provider serious about competing in the UK market will want to make the new business and underwriting process as straightforward and efficient as possible.
In that context, an underwriting-light or underwriting-free low level of cover may at first seem attractive.
However, care is needed in the context of individual CI business as the dynamics of “entry” are very different to group business, where the potential risks of anti-selection are reduced through how the product is made available and priced at scheme level.
In contrast, individual business benefits from an appropriate level of underwriting at new business stage, reducing the need for re-underwriting at claim stage, and therefore providing customers with that much needed higher level of certainty that valid claims will be paid swiftly and without fuss.
There is certainly a place for low-level cover in the market, but perhaps it would be better to enable people to appreciate the value of full protection and to consider it earlier in their lives. Cover can be obtained more cheaply at younger ages.
This means that there will be less likelihood of previous medical history or events that require more underwriting evidence, which ultimately could result in an additional loading on premiums.
Rather than a quick, limited form of protection, it may make more economic sense for them to establish the habit of making broader financial decisions and understanding the value of comprehensive protection at a younger age.
