As providers increasingly look to partial payments on critical illness policies, Phil Jeynes warns advisers to be careful in their comparisons.
We were proud to be among the first to cover low-grade prostate cancer in our Serious Illness Cover contract and welcomed the news that others were joining us by including this disease as a partial payment addition to critical illness plans. But not all insurers pay out for a low-grade prostate cancer claim simply on diagnosis of the illness.
Providers require patients to wait until either radiotherapy has commenced or the prostate has been removed before passing on the cheque.
An insignificant detail? Not when one considers the guidelines doctors are working under when treating this condition.
The guidance from the National Institute for Health and Clinical Excellence is that doctors take a non-invasive approach following a low-grade prostate cancer diagnosis, with a period of active surveillance being the recommended first course of action.
A TRICKY SITUATION
Imagine, once again, this is a customer of yours – diagnosed with cancer, told it is not critical enough for a critical illness payment, and told it is covered under a partial payment addition to their plan.
Then they are told they have to wait until radiotherapy starts, or the prostate is removed, before the payment can be issued, irrespective of what their doctor believes is best in the short term. One can imagine the frustration and anger a client may feel.
There are some who will argue fervently that standard critical illness cover remains a better bet for customers than severity based protection, despite examples such as those outlined above.
The rationale is based on the irrefutable fact that an ‘all or nothing’ contract will, in a minority of instances, pay out all of the sum assured when the severity based contract would pay out a proportion. However, there are a three points that need to be considered.
Firstly, selling a plan to a client on the basis of a section of potential claims areas where one favours another is a flawed strategy. One does not know which condition may be claimed upon at point of sale and therefore, ‘gambling’ on one over another seems a risky approach, especially if one ignores a plan that has the potential to pay claims on a wider range of other ailments.
Secondly, the argument incorrectly compares how the two plans function. Let us assume a critical illness plan pays out £100,000 (or 100% of the sum assured) whereas, for the same condition, a severity based plan pays out £50,000 (50% of the sum assured).
After the initial claim, the critical illness plan ceases, the client uses the money to get better, to modify their home, take a break from work etc – and so on – and the job we set out to do has been accomplished.
The severity based plan, however, remains in place with the residual value retained (in this example the other 50% of the sum assured, £50,000). Should the condition worsen, or an entirely separate illness be contracted, the plan continues to provide cover for the client. In addition, if the client took a minimum protected account option at the time they bought the plan, their cover could remain at the original sum assured even after a claim.
Compare this to the critical illness cover outcome, whereby the client is now uninsured (and to a large extent uninsurable). Bear in mind that more than 90% of critical illness policies are taken on an accelerated basis (i.e. they are combined with life cover), meaning that the client is left without their life insurance, too.
A recent survey carried out by Immerse found that the ability to make multiple claims and have ongoing cover was a key consideration for many of the members of the public they polled.
KEEPING THINGS FLEXIBLE
The final point is that in a wider context, this debate hints at one of the fundamental problems with the rigidity of critical illness policies. It is common knowledge that the specific wording of plans, and the ABI definitions, changes at regular intervals so as to keep the cover relevant.
What insurers often do by making these adaptations is, perfectly reasonably, ensuring their policies do not provide cover where it is not necessary. This is why a contract from 20 years ago has a less stringent definition for cancers, whereas a modern critical illness plan makes it clear that only the more severe forms of the disease would constitute a valid claim.
As knowledge and treatment of cancer has improved, so the cover needed can be less broad-brush. One might argue these changes are to the detriment of the customer but, just like such arguments against severity based cover, this misses the point. We are not offering insurance that aims to make clients wealthy. We are trying to stop people’s lives being ruined when a dreadful disease strikes.
Severity based plans by their nature adapt and keep pace with medical advancements and changes in treatments, ensuring fair and appropriate cover for customers.
Adding partial payment elements to all or nothing policies is absolutely a step in the right direction and aligns such contracts more closely with what consumers value and expect from their insurance.
Severity based cover, however, covers the widest range of conditions and provides lasting cover that is relevant to the need of the client at the time of claim.
Phil Jeynes is head of account development at PruProtect
