The individual critical illness market has long been one of the most competitive in the protection industry, but, writes Owain Thomas, could controversial new plans and a battle over definitions see it break out into open warfare?
From an adviser's point of view, there has been only one subject dominating the critical illness (CI) landscape recently; the expected introduction of sales scripts.
The project has been orchestrated by an industry-wide group to prevent more severe sanctions from the FSA, after the regulator uncovered significant failures to disclose full policy details to customers in oral sales.
Although its investigation was into the sales of CI under Insurance Conduct of Business Sourcebook (ICOBS) guidelines, it appears that some bodies are planning to recommend the scripts as best practice to both ICOBS and COBS advisers alike.
The move has caused unease among many advisers, but Andrew Ward, partner at Yoursure, (which operates under ICOBS) is not too surprised by it.
However, he is more concerned about how it will be employed.
"The script coming in is not a surprise to me and it wouldn't be a disruption, unless they say ‘you have to say this, every single time, in this way,'" he says.
"If it is going down the route of ‘you have to say exactly this' then that is tough, because every customer is different. But I'm definitely in favour of it being: ‘here's a framework, you have to stick to it to make sure people are experiencing the same sort of quality of advice throughout.'
"So as long as it is more of a framework than an absolute ‘you have to say the exact same thing every single time', that's fine," he adds.
And Ward believes it is the adviser who should take responsibility for any lack of understanding by the client, rather than the product's complexity.
"I believe it's our responsibility to make sure that we understand the illnesses that are covered and the exclusions that are there, or not there, in some cases," he says.
"It is our duty to know if angioplasty is covered, otherwise we cannot explain what it is, and I don't think you can simplify CI because if you say you are just covering cancer, you would have to pay out for all the different types of skin cancer that are not going to affect people as much as for example, liver cancer. It just could not happen.
"So it is our job to be very good at knowing how this could work and which providers are good and bad at different things, and what is more important to a male or female client," he adds.
His final point is a challenge to providers over the likely re-naming of total and permanent disability (TPD) to irreversible life-changing disability (IL-CD) by the Association of British Insurers (ABI).
"I would like to see a major backing from the business development managers so we have a very clear understanding of how that is going to work and also that they are endorsing it," says Ward.
"You find when you have managers taking about TPD they skirt around it or talk about their own additions to it.
"So I would like to just see that whatever is completed and finally implemented, they really go to town on and make sure we have all the resources to fully understand it and that they are enthusiastic about the change," he concludes.
Ambitions
It appears Ward isn't the only one with ambitions for the future of TPD.
Although it accounts for just a small proportion of CI claims, approval rates have been significantly lower, hovering at around 50%, compared with standard CI claims approval rates improving dramatically to an average of about 90%.
The need to improve on this figure was recognised by the ABI in its consultation, but Martin Werth, managing director of Fortis Life UK, believes more needs to be done by providers to address the problems.
"I think changing the name of TPD does not alter whether the cover is meeting the customer's needs," he says.
"It may improve communications, but when there are 40 or more conditions to communicate you have got to ask: ‘Does that significantly alter the customer's perception?' In my view, customers consider a condition that stops them working for six months serious, regardless of what that condition is, and so expect that it will be on the list of 40 conditions.
Werth says: "So if a customer has bought this plan to provide them with financial security if they are unable to work (which is what the ABI research has said) what can we do to provide them with that coverage?"
One new attempt to provide this coverage is now seeing critical illness moving into an overlap with private medical insurance (PMI).
Given that CI's origins are based in South Africa, where it was known as Dread Disease and used to supplement the costs of medical coverage, this seems a natural approach.
However, Werth is not so sure that this latest project from PruProtect will be successful, suggesting that PMI sales are currently in decline, and adding another product onto CI is making it more complex rather than simpler.
"The UK industry tried something similar in the early 1990s with major medical expenses, where we looked to provide fixed benefits depending on the severity of the condition," he says.
"It didn't work. And it didn't work because the customers who could afford PMI still continued to value the PMI and had no need to worry about whether the payment was going to meet the cost of treatment, while those who could not afford PMI were more exposed to the risk that our benefits did not meet the cost of the healthcare.
"So I'm not sure that adding something to PMI necessarily also adds anything to either the CI or PMI," he adds.
ABI+ definitions
Something that may address Werth's concerns about product development without increasing complexity too significantly is the growing use of so-called ABI+ definitions, where insurers use illness definitions which exceed the ABI's base level as part of their proposition.
This is certainly where Gerry Warner, protection development manager at Zurich, sees the market going in the near future.
"This is almost a new measure," he says.
"I think there's been a stabilisation of the number of conditions that providers cover, but this new feature is the ABI+ definition. What I would read is that providers are using that almost as if having a large number of ABI+ definitions might be as important as the number of overall conditions you might cover.
"So you have a quantity measure in the number you have covered, and then you have a quality number," he adds.
Another product development to take off this year was the drive to cut premiums for those clients receiving exclusions to their coverage.
This move has been almost universally welcomed as a fair thing to do, that epitomizes the treating customers fairly mantra.
But sadly there is at least one more provider that will, from the end of the month, no longer be competing in the critical illness market.
Skandia's withdrawal has surprised few, given the ever decreasing margins for insurers and increasing amount of churn.
However, it does mean one less option for clients and advisers to consider, adding to the concerns of many, following recent industry amalgamations and current rumours of providers pondering their positions.
Filling the void
Warner agrees that losing Skandia is not a good thing, but suggests those who remain need to step into the breech.
"It's always disappointing when you see established firms withdraw as it means less choice for the customer and distributor," he says.
"On the other side of the coin, it does raise opportunities for those that remain, and we will try to fill the gaps that are left. It is important that we as an industry continue to provide value for money contracts for customers and distributors alike."
This appreciation for intermediaries means Warner understands and echoes some of the uncertainties about the impending scripts, and a belief that the customer needs to take some responsibility as well.
"I think it must be quite difficult for an adviser who is selling CI," he says.
"Do you go through the entire list of conditions, especially with 35 to 40 being commonplace now? There are some very key messages that should be drawn out, such as not every heart attack and not every cancer is covered, so the customer needs to read their policy conditions too.
"And if they come home and put it straight in the draw, they may well end up disappointed a few years down the line because their particular condition is not covered," he adds.
All this leads Warner to believe the CI market will remain an active one for the foreseeable future, as he suspects more providers will go down the route of reducing premiums for exclusions and suggests the outbreak of an ABI+ definitions war.
Hopefully this would be one conflict where the average citizen would reap the benefits, rather than being caught in the cross fire.
