It all began 25 years ago with the launch of the UK's first ever critical illness products by Abbey Life and Allied Dunbar. Scottish Provident's Jennifer Gilchrist looks back on a seminal moment in the history of protection...
As critical illness products celebrate their 25th birthday, Jennifer Gilchrist takes a look ‘back to the future' of protection
"Has the protection industry gone through much of an evolution in the past quarter of a century? Whatever your view, it is clear that the market today is very different from the landscape 25 or so years ago.
After all, 1985 was the year that Doc Brown invented time travel, but the question is do we need to go back to the future to fix the protection industry's present conundrum?
Since the 1980s, we've had the good times (the growth in the life and critical illness market pre-2004), the bad times (the endowment fiasco) and the plain ugly times (the PPI mis-selling scandal). But if you could take a trip in a DeLorean time machine, what would you change in the protection market's history that would have made it more successful than it is today?
In 1984, the then Conservative government had abolished Life Assurance Premium Relief. Apart from traditional term assurance, the majority of protection was sold bundled with savings products. These were endowments, later to fall from favour, and the complicated unit-linked flexible whole of life plans, which allowed customers to alter the balance between protection and savings within the same plan.
By the end of the 1980s, we saw life assurance costs double due to fears of a worldwide AIDS epidemic, causing actuaries to introduce huge loadings into premium rates. These rates were so large that years of rate reductions since have been funded partially by reducing the AIDS loading.
Critical illness cover, initially launched in the UK in 1986 by Abbey Life and Allied Dunbar, didn't really take off. It was only until Pegasus, Skandia Life and Prolific launched products that we saw an upward trend in new business, which was to continue until 2004. These original products were all written as flexible whole of life plans, which was still the most popular chassis for a protection product.
The foundation of the success of critical illness products was the standardisation of the six core illness definitions in a campaign championed by the National Federation of IFAs in the early 1990s.
In 1996, Scottish Provident launched the Self Assurance range - it bucked the trend by using a term platform to deliver the first menu protection product, which combined life, critical illness and income protection within the same plan. This caught the eyes of IFAs as it enabled them to create a tailor-made product solution for each client - thus putting advice at the heart of the proposition.
The product was so successful that the menu term product swept the whole of life product aside. It has since become the preferred method of writing protection in the IFA sector. The product was also one of the first to offer guaranteed critical illness rates, which continues to be an important element even in today's market.
In the late 1990s, concern from the Office of Fair Trading (OFT) about the complexity of critical illness, income protection and private medical insurance products led to the ABI standardising terms and definitions.
The ABI's Statements of Best Practice are still a regular feature of the protection market today, helping to maintain standardisation across the industry and providing consumers with at least an appropriate minimum standard of cover that is clear and easy to compare across different insurers.
