How hard is it to design disability-based protection products in 2012, asks Andy Milburn.
Offering a value-for-money, traditional-style critical illness product that stacks up on process, price and quality with the right number of meaningful conditions still feels like the way forward.
Strategy two: severity
The second strategy is to wave the white flag on traditional critical illness product design and to follow the South African market by creating new severity-based or more complex products with higher numbers of conditions.
A number of providers in South Africa have now gone down this route. But is this a form of PMI? Does anyone remember major medical expenses? Based on conversations, advisers will either like or dislike this sort of product.
For many, the jury is still out this approach. For every adviser in the industry who likes this product design, there seems to be an opposite number who thinks differently.
Strategy three: partial payments
Some of the additional conditions that our industry is adding into critical illness products must come at a price to the customer if they are meaningful, and a meaningful sum assured is required by the customer. In a recession, is it wise to add new conditions that result in increased premiums for customers?
We know that Friends Life has begun to take product design in this direction. By adding in a number of partial payments, you increase the price consumers pay, not as much as complete severity-based cover, but still more expensive than the traditional route.
It will be interesting to see how this scenario plays out in the next few years in a marketplace that sometimes focuses too much on price. There are few providers who have enough brand equity in consumers' eyes to make this strategy a success.
Strategy four: simplification
What if providers take the original dread disease approach in the future and simplify things alongside a government-backed push for simplified products? Will we see new products emerging, offering original six core conditions to consumers?
Alan Lakey of Highclere Financial Services makes some good points on conditions, stating that there must be prevalence and incidence. Is this a starting point? The original six core conditions on early critical illness products still make up the vast majority of the causes of current critical illness claims.
One other thought on the whole approach to government-backed simplified product designs is where is the customer in all of this? Many experts say that both income protection and critical illness cover are flawed in certain areas.
Instead of following a trend to make things simple, could we look at future strategies for combining critical illness and income protection together to deliver what the customer expects of each? Is there a potential new product or combination of both to be discussed that meets customers needs without the issues both products carry today?
It is frustrating when we see our industry focus on the product design and process issues surrounding income protection. They always seem to gain more ‘airtime' than the bigger picture challenge that we could be addressing. It will be much harder to figure out different strategies for this product if things stay the way they are.
