Imminent legislation is going affect the amount of critical illness cover people get for their cash. Mark Jones looks at the EU Gender Directive
When recommending critical illness cover to clients, the three main areas to consider should be whether the policy pays out on legitimate claims (which can be seen through providers regularly publishing their claims statistics); comparing how comprehensive the illness definitions of when you can make a claim are; and whether the cost of the policy is within budget.
Radical shake-up
The amount of cover people can buy within their budget is about to be radically shaken up, as the EU Gender Directive draws closer to reality. The ruling, which makes it illegal for insurers to use risk factors based on gender in connection with insurance premiums, comes into force on 21 December.
Men and women represent a different risk for life and illness insurance and currently insurance policies are priced accordingly. For example, women live longer than men, so the cost of life insurance is cheaper for women. But women are more likely to suffer a critical illness, so this, alongside income protection, is cheaper for men.
This will no longer be the case from 21 December and insurers will have to pool the risk and offer a unisex price. That will have a significant impact on the UK’s insurance industry and millions of consumers.
The departure from using gender as a risk factor when pricing insurance will make it more difficult for insurers to ascertain the risk the applicant presents. It is expected to result in a considerable number of price movements across the protection market, as providers cross-subsidise from one gender to the other.
The direction in which the subsidy goes will, of course, depend on the type of protection product being bought and where the provider draws the pricing line between the current male and female rates.
Strike the right balance
The gender directive means providers need to find an alternative to strike the right balance between price and business mix, which maximises their competitive position within the market.
In response to the changes to legislation and the challenges providers will face, we may see new products entering the market that target certain demographics.
A critical illness product designed to appeal more to women, for example, offering partial payouts for hysterectomy and mastectomy; or, for men, prostate cancer and heart attacks.
For many advisers the implementation of the Retail Distribution Review, which also comes into force in December, is the issue that is occupying the bulk of their time.
With the EU directive likely to climb higher up their agenda as the year draws to a close, however, the time between now and the legislation being enforced should be seen as a window of opportunity for advisers and their clients. Effectively, that period can be seen as the protection industry’s ‘Blue Cross Sale’, with products available at prices not likely to be seen again.
The UK is vastly under-insured and advisers can play a pivotal role by using this as an opportunity to speak to more people about their protection needs.
It is clear advisers with clients that have existing protection policies should review their cover and establish whether their level or type of cover should be adjusted or updated.
The savings clients can make by purchasing the cover ahead of the gender directive kicking in provides them with a real added incentive to take action.
No transition period
When new legislation comes into force, typically, the industry’s approach is to offer transitional arrangements for pipeline business. However, this will not be the case for the gender directive.
There are no provisions for pipeline or transitional arrangements within the EU law and there is no chance for the directive to be derailed, delayed or changed.
Therefore, any business that is not ‘completed’ by midnight on 20 December will need to be switched to gender neutral rates.
In the run-up to 21 December, pipeline management will be critical and advisers will need to consider the likelihood of a request for medical evidence and the impact that would have on a client’s application time.
Requests for GP reports can add several weeks to the length of time it takes to process an application, with providers and advisers having little control over the time taken for a GP to respond, so it is vital that advisers factor this in.
Although the changes will occur in the second half of December, advisers should not put off submitting their clients’ protection applications, as they run the risk of their client’s cover not being on the books in time.
There are many issues around the gender directive that still need to be solved, which will hopefully be addressed when the UK legislation is published in the next month or so. It would be great to see advisers taking this period as a real opportunity to raise the profile of protection and make best use of the gender pricing while stocks last.
Mark Jones is head of protection at LV=
