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...
Providers - including Scottish Provident - publishing critical illness claims statistics in the market has not only heightened awareness of the cover with the number and value of claims being paid but also highlighted the issue of non-disclosure.
Again, the ABI has been key to driving through change with the publication of its Code of Conduct for the payment of claims resulting in higher numbers of claims paid and lower declines.
Consumer awareness and transparency has featured across the industry with the FSA's Treating Customers Fairly regulations and its recent publication of the complaints statistics across the financial service industry. This has provided a welcome boost to the life and critical illness market where complaints are declining - PPI complaints being excluded, of course.
The critical illness market has seen a South African makeover with the launch of Pru's severity-based product in 2007 covering more than 150 serious illness definitions. Most providers have not yet gone down this route, preferring instead to tinker with their current products by adding on a few more definitions. In an industry where we are constantly being asked to simplify, where will we end up with critical illness? Is more less?
LEARNING FROM HISTORY
The development of electronic trading and more recently the introduction of tele-interviewing has helped to cut processing costs, speed up the application process and also reduce non-disclosure statistics. But now after more than a decade of success, the protection market is still contracting in size and the protection gap, as quoted by Swiss Re, has still not decreased.
Many things have contributed to this over the years: the ups and downs of the mortgage market, continual changes in regulation, and the current economic climate. One thing is for sure: at least in the last four or five years, we can't blame price as this has continued on a downward spiral. Premiums have not been so cheap since 1990, according to re-insurer RGA, and the industry faces a challenge to restore the protection market to the successful heights it once enjoyed.
Throughout the last 25 years or so, the protection product that has made the least impact has been income protection. Payment protection insurance has been more dominant until the recent super complaint to the OFT and subsequent regulation in this area. It's a shame as arguably income protection best meets customers' needs, but the industry has continually failed to solve the issues of complexity, which have hindered sales.
In the last decade, we have seen new products and providers enter the market: AXA, Bright Grey and Ageas (previously Fortis). We've witnessed many product developments and this is likely to continue, with 64% of IFAs believing there should be more product development in the future. We now have a coalition government and it's anyone's guess what impact the new Prudential Regulation Authority and Financial Conduct Authority, as well as the current FSA, will have.
In the next quarter of a century, it will be good if we can take forward some simplification of products to help consumers see the need for protection, for the new government to sort out care for the elderly so we can develop the long term care market properly and for providers to embrace new technology, and focus their attention on the changing customer demographic. But the best lesson we can learn if history is going to change is to embrace the future and learn from the past.
Jennifer Gilchrist is senior product development manager at Scottish Provident
