Just how clear is the future for critical illness? Steve Casey outlines the factors contributing to the product's future.
Throughout history man has tried to predict the future. Within the health protection industry, actuaries spend more time looking at and considering improvements in mortality and morbidity than examining the actual incidence rates. While looking in the rear view mirror may often be a guide – as history is said to repeat itself – predicting the way ahead is a great deal more fascinating.
The same can be said for the individual Critical Illness (CI) market. There is currently a great deal of debate about how it will evolve in the next few years.
CI insurance was developed in South Africa in 1983 to mitigate the costs associated with medical treatment and the concept was soon exported around the globe. Nowadays it plays an important role in many markets, particularly in the UK, Canada and the Far East. It has been adapted in various countries to meet customers’ needs, regulatory obligations and market nuances.
Few could have predicted when CI was born, where it would end up. Who would have thought that keyman CI products would have been offered 15 years ago? The number of conditions covered under the CI product has increased significantly from the initial six. Greater product flexibility post sale has enabled customers to tailor it to their changing needs, more options and valuable features such as Best Doctors and healthlines have been included.
In the UK market, to aid the development of the product, the Association of British Insurers (ABI) prepared a Statement of Best Practice that is designed to ensure that customers and intermediaries understand the product and are able to easily compare the various offerings from market providers.
Ebbs and flows
While CI cover sales have ebbed and flowed over the years, mainly because the product is inextricably linked to the mortgage market, the ‘best fit’ line shows a downward trend in sales year-on-year. Another less obvious factor that has affected product design and sales has been the reinsurers’ view of the guaranteed element of the product, which led to an overnight reduction in reinsurance capacity. Put simply, demand outstripped supply leading to an increase in premium rates.
But all of this is in the past, we are at a very important stage now in the evolution of the product and we can learn some valuable lessons from history.
We have reached this crossroads for a number of reasons:
- The introduction of the ABI Statement of Best Practice in claims adjudication in 2008, which is designed to provide clarity around the process, has led to the number of claims declined due to non-disclosure plummet. In reality, many providers tried to follow the principles set out before its formal adoption. Now there is a clear picture of the process. This does not reduce the obligations of the customer who is still responsible for a full and frank disclosure of any medical conditions they, or their family members may have had.
- The latest consumer research about CI published by the Financial Services Authority (FSA) is worrying. It reveals a distinct consumer misunderstanding about what constitutes an advised and a non-advised sale when buying the product. What the consumer is covered for under the terms of the contract warrants further investigation as it is apparent that the consumer does not necessarily fully understand what they are buying.
- The ABI Statement of Best Practice is currently in pre-consultation. The working group is concentrating on the definition of Total and Permanent Disability although it will potentially include a review of other conditions. The consultation paper is due to be published in June 2009, with a final best practice statement due at the end of the year. We can expect the proposal to impact upon future product design and await the consultation paper with interest.
- Providers have been transparent when publishing claims paying history, not just in the percentages of claims paid but also the nature, type and duration of those claims. Across the market, cancer claims still continue to top the list of claims paid, but there are increasing numbers of claims paid for cardiomyopathy, angioplasty, value surgery and child benefit claims.
Status quo
So what are the likely future developments for CI cover? Will there be more of the status quo, or a move towards complex severity-based products, which will pay out set percentages based on the degree of impairment resulting from the condition?
Although we cannot predict the future, it is likely that there will be a range of CI products, and at the heart of most of them will be the desire to meet our customers’ perceived needs, based on the nature of the claims we receive. Conditions may be tweaked as medical advances develop, or when providers review their claims’ portfolios to see if they can meet and offer wider coverage. Recent enhancements, for example, have meant that ductal carcinoma in situ (DCIS) and low grade prostate cancer are now covered.
Whatever the makeup of tomorrow’s CI products, simplicity, affordability, understanding and accessibility are not to be underestimated.
Cushioning lifesftyles
Firstly, simplicity. Many customers will expect that in an event of a claim, the amount shown on the policy document will be paid, not a percentage of it, so it is clear that well-defined claims criteria and fixed benefits such as a lump sum benefit have appealed to consumer expectations. The benefits meet customers’ desire of choice whether they want to pay their mortgage off, for example, or to cushion a change in lifestyle.
Affordability is an obvious component of any CI product, not just in the current economic downturn. A balance has to be struck between adding conditions and benefits which will increase claims costs against making existing conditions so prohibitive – in effect turning the product into a terminal illness rather than a CI plan.
Understanding – it is imperative for consumers to know exactly what product they have bought, and what they are covered for. The recent FSA findings are very worrying. Warnings about the nature of the sale (and the consequences of this) have to be more prominent to allow the consumer to make an informed choice. Providers will continue to demonstrate the benefits of their particular plans while attempting to eliminate as much of the ‘small print’ as possible.
Customers will want to understand what is not covered under their plan. There is a trend for providers to offer a reduction in the premiums paid if, at the time of underwriting, a condition is excluded. This pioneering aspect was introduced by Bupa Individual Protection in April 2007 and has since been adopted by Fortis and AXA.
Accessibility
Finally, we must not forget accessibility for the consumer and the intermediary. Great strides have been made over the last three years to give them both ease of access to providers’ products. Providers generally offer a range of options in order to trade, ranging from full interactive electronic underwriting to tele-underwriting.
Providers will continually innovate, taking the views of their intermediary partners, consumer expectations, medical advances and the ability to price the contract into account. Underpinning all of this will be the desire to keep the product simple, yet flexible; comprehensive, yet affordable; accessible, yet controllable.
One thing for sure is that the crystal ball is not as clear as it may have been in the past. With barely a day going by without press health reports linked to increasing levels of obesity and genetic breakthroughs, the future of CI coverage could soon look radically different.
However, we can be confident that not only is the industry ready to respond, but we will face all future challenges based on our established, but fundamental respect for protecting individuals and their loved ones.
Steve Casey is product manager at Bupa Individual Protection
