It has been one year since the Association of British Insurers' new definitions on critical illness came into force, yet advisers and consumers are still missing out on what is seen as a difficult product, argues Iain Mallon.
Last year's critical illness (CI) shake-up was hailed as a chance to make policy wording more transparent for consumers. At the time, the change was greeted as an opportunity to mend CI's poor reputation in the media and in the mind of the man on the street.
One year on and CI policies are still being hauled over the coals in the mainstream media, consumer behaviour in buying policies has not significantly changed and advisers still view CI as a difficult sale.
This should not be the case. The Association of British Insurers' (ABI) definitions brought in more clarity on what is and is not termed as a critical illness. This makes it better for both consumers and advisers to compare policies and be clear about what cover each one provides. The ABI model definitions were increased by three to 23 and, since April 2007, all providers have been required to use these in their policy wordings. The theory is that all customers should know exactly what they are buying and whether or not they are covered should they need to make a claim.
In reality, many consumers and advisers are still confused. A reason for this is some providers used the change in definitions as a chance to add cover to their policies for lots of extra illnesses. Although on the surface this may seem to be in the consumer's interest, most of the additional illnesses are ones that consumers are very unlikely to ever suffer from. Having a long list of conditions covered by a policy makes sales harder, as advisers have to explain complex medical definitions to customers who may have no understanding. It is arguably a turn-off for consumers because they have to wade through all this additional information, making buying a policy seem like hard work.
Be specific
Increasing the number of illnesses covered does not necessarily increase claims. Around 79% of all claims are for the four core illnesses - cancer, heart attack, stroke and multiple sclerosis - so what advisers should be doing is looking for policies that offer added value in areas that clients are more likely to benefit from. For example, Skandia and Axa both include cover for total mastectomy to treat carcinoma in-situ of the breast as a free added benefit on CI policies. This would not be covered under the ABI definitions of critical illness but is a strong selling point for female customers, as breast cancer is the most common cancer in women in the UK and there is a high level of awareness about it because of the screenings women of over 50 years old undergo.
Another area where some policies add value is by paying out a proportion of a CI claim early to help customers cover the cost of private heart surgery. One in nine CI claims is for a heart attack, making this another strong selling point for advisers to exploit when talking to their clients.
Something that does increase payment of claims is reducing non-disclosure. This is one of the two main reasons CI claims are turned down, the other being that the condition the customer is claiming for is not covered under the policy. Industry-wide claims rejection for CI is up to 25% according to Swiss Re's Term & Health Watch 2007, therefore non-disclosure is the most important issue for the industry if it wants to build adviser and consumer confidence in CI products.
One of the ways in which we can achieve a massive reduction in non-disclosure is through full tele-underwriting. Statistics gathered over the past year show tele-underwriting reduces non-disclosure to 1.23%, compared with 3.48% for electronic applications and 5.78% for paper applications.
The reasons for the reduction in non-disclosure are simple: firstly, consumers are far less embarrassed about disclosing sensitive details regarding their health and lifestyle - such as weight, alcohol intake, drug use and STIs - to a trained professional over the phone than face-to-face to their adviser. This is particularly the case for people taking out joint policies, where one half of a given couple may not have told their partner all the details of their medical history and therefore may not disclose it when the adviser is taking them both through the application form.
Secondly, full tele-underwriting, where all the application details are taken - as opposed to partial tele-underwriting where advisers still fill in the application and mop-up details are taken over the phone - is a far smarter method than a traditional paper or electronic application. If a customer mentions a particular medical condition then the tele-underwriter will immediately be able to go through further drill-down questions generated by the online underwriting system to capture information needed, reducing the need for GP reports or medicals.
Full tele-underwriting is also a good way of capturing details which may otherwise become lost in a traditional application. For example, a consumer may answer that they had no neurological condition without realising the hand tremors they were experiencing fall under this category, which would result in non-disclosure if they were filling in a traditional application. Towards the end of the phone interview, the tele-underwriter would ask whether or not the consumer has had any other medical conditions that have not been covered, at which point they reveal that they have had hand tremors. The tele-underwriter would then go back to the section on neurological conditions and go through the additional drill-down questions to make sure all relevant information is captured.
benefits
Increasing the amount of CI business that is fully tele-underwritten would reduce non-disclosure overnight and these benefits should be explained to both advisers and customers, as well as the mainstream press. The added benefit to advisers is that cases can go on risk more quickly, meaning commission is paid sooner.
Despite the changes in the ABI definitions, one of the gripes advisers have about CI is that it is a difficult sale so they concentrate on life cover only. It can seem less attractive to consumers because it costs more than life cover and rightly so, as people are far more likely to develop a critical illness than they are to die within the term of their cover. For this very reason CI is a far more appropriate cover for many consumers to have than life and, in terms of treating customers fairly, advisers need to explain this to their clients.
At the bottom line, additional commission income from turning one life-only policy to a life-and-CI sale is a smart way of maintaining income as the credit crunch hits the industry.
While last year's changes to the ABI definitions provide clarity over what consumers can claim for, this has not translated into a major uplift in the number of consumers covered under CI. Providers and advisers need to work hard to make the application process straightforward as well as making clear the need for consumers, ensuring the cover is provided to those who need it. In short, the reputation of CI in the market needs improving and that is something we can all play a part in achieving. n
Iain Mallon is head of protection at Axa
