Following the ABI's review of the CI definitions last April and with the implementation date now looming, Lucy Quinton looks at whether the industry will make the deadline
The critical illness (CI) market has had a tough ride over the last few months. Not only has there been a decrease in the number of sales of the product, but the mess at the end of 2006 surrounding the Association of British Insurers' (ABI) proposed CI definition for cancer, rattled the industry ahead of the new definitions being rolled out in April this year.
The updated CI definitions were announced last April when the new Statement of Best Practice for CI was published. Changes included a new standard description of CI to help ensure that consumers see a consistent explanation of the product; better descriptions of the illnesses covered ensuring that, even if consumers do not read the full definitions, they will get a much clearer view about what is covered and what is not; and improvements to definitions of each critical illness covered, meaning there is less room for doubt when policyholders make a claim.
Clarification
The ABI hopes the changes will help to clarify what is and what is not covered under a CI policy. Commenting at the time on the ABI's initiative to improve the CI definitions, Richard Walsh, assistant director, health and protection insurance at the ABI, said the new Statement of Best Practice would mean customers have a clearer explanation about what their product covers when they need to make a claim. "This should also lead to fewer declined claims," he added.
However, there have been upheavals with these new definitions, particularly at the end of last year surrounding the CI definitions for cancer when Swiss Re, late on in the day, put forward two cases of bone marrow diseases, previously classified as pre-malignant and excluded under a CI policy, and asked them to be considered as malignant and covered under the CI definitions.
While this issue has now been resolved, with the ABI caving into Swiss Re's demand, it led to a period of distinct smarting for some providers who had already implemented the ABI's CI definitions before this U-turn occurred.
Confusion
Commenting on the new definitions, Roger Edwards, products director at Bright Grey, says: "We believe very strongly in the need to change the definitions, because it is the only way the product can survive in its current format. That said, we do believe that the change in the definition wordings will require careful communication to ensure that consumers understand what they mean."
By this he means, for example, that, in the past, the use of the word "cancer" in the key features may imply all cancers are covered, even though some are actually excluded. Edwards argues that such vagueness would have meant customers were surprised by an exclusion on the policy.
Like Bright Grey, Prudential is in favour of the change. Paul Cowman, head of proposition and market strategy, insurance at Prudential, says: "It gives greater clarity to customers over what constitutes a claim."
In April, providers will have had a year to implement the changes but, so far, the majority, including major players such as Aegon Scottish Equitable, Bright Grey, Bupa, Friends Provident, Liverpool Victoria, Skandia, Standard Life and Zurich, have yet to make the change. Only a handful of insurers - such as Royal Liver, Prudential, Norwich Union and Scottish Widows - have implemented the changes.
Peter Chadborn, principal of CBK, says from an IFA's point of view it would have been better if they would have implemented the changes at the same time. He adds: "It doesn't matter when they make the changes, although uniformity would be preferable. The issue is how IFAs know when each company is going to implement the changes."
Regarding the implementation of the CI definitions, Chadborn says that, from an IFA's perspective, nothing has been communicated about who is doing what and when. There are no clear guidelines as to which provider has implemented the changes or is set to and when. He wants to see the ABI be more assertive as "communication has been fairly limited". He adds: "There is no right time necessarily but I would like to know who's doing what and when."
Chadborn suggests that there should even be one particular day when the CI changes come into effect - like A-Day - suggesting that providers could benefit as well because, at the moment, "they have to go through the timely process of communicating the changes to each of their IFAs separately".
Alan Lakey, principal of Highclere Financial Services, believes there will be two areas of concern regarding the implementation of the definitions. "There will continue to be a lot of fine-tuning of premiums as providers jockey for position and aim for desired market share," Lakey says. He suggests that the second area of concern is an ongoing issue and relates to various definitions and combinations of cover offered. "There is a great potential for companies to lose sight of the definitions in use at the time of the sale, and for claims to be dealt with using incorrect underwriting," he warns.
Phil Hull, product manager for life, pensions and investments at Sesame, says, while changes are a positive move for people who understand the contract and the market, the end consumer will notice little difference as they are not fully aware of the scope of the contract.
He adds: "Advisers will have to be more diligent in explaining the contract with a consistent set of definitions." He remains sceptical about an increase though in CI sales as a result of the new definitions but thinks "sales will increase if, as expected, the new definitions result in better understanding for consumers. Ultimately, sales will be driven by how well the advisers can explain the contract."
Understanding
The review of the statement will hopefully ensure an increased and more thorough understanding of this area of the market. Indeed as Walsh says: "Better understanding by both consumers and advisers of all protection insurance products should enable people to make a more informed decision on what type of product is most appropriate for any given individual or family. We hope this will encourage more people to take out protection insurance policies, which provide valuable peace of mind."
In addition, Walsh hopes that "better understanding of CI insurance, in particular, will reduce the number of claims that are declined".
Lakey tentatively believes that this review will provide a greater sense of clarity, but adds: "The changes are not too dramatic and life will carry on as before in the main".
"Customers' confidence in CI is already at an all-time low, with declined claims and adverse publicity. Most of the work and comment on this has been contained to the trade press and, therefore, will have limited impact on customers," Cowman explains.
The changes are a step in the right direction, but will not mean any more claims will be paid, Cowman adds, and, ultimately, "customers will still be unsure as to what exactly qualifies as a claim".
The ABI prefers not to quantify the cost involved in reviewing the CI definitions for cancer preferring to preach to the choir instead that: "changes to product literature do cost money. That is why we built in an implementation period, which allows companies to make changes during their normal review processes, rather than having to conduct a separate exercise".
Perhaps unsurprisingly, providers do not seem willing to divulge the cost that is involved either. Whatever it may be, hopefully it will be worth it, not only for the industry but for the consumers as well.
