Critical illness is a product beset by complexity - a situation not helped by a raft of changes set to arrive next year, says Edward Murray.
A somewhat larger change on the product front hit the market in April when LV= launched its new CI product, increasing the conditions covered from 38 to 48 and adding to the number of partial payments covered.
Alan Lakey, senior partner at Highclere Financial Services, said: “LV= has made a massive improvement and has added in a number of new conditions. It has taken on Friends Life and included plenty of partial benefits.
“Things such as lobectomy (which covers the surgical removal of one lobe of the lung in cases where it is affected by cancer), are now covered, as well as angioplasty, which was previously covered by only Friends Life.”
The fact that LV= has put itself into a more competitive position on the back of the conditions and partial payments is interesting in itself. It also reaffirms a long-standing issue with the CI market – one of confusion around exactly what is and is not covered.
Lakey explained: “For example, with angioplasty the two companies that cover this say you must have at least a 70% narrowing of two arteries. But my understanding is that consultants are recommending angioplasties where there is a 50% narrowing and so, there is scope to have that operation and to claim and be denied.”
There is no suggestion that this has been designed to create problems, but rather a frustration that the difference between clinical definitions and CI definitions often leads to problems. For underwriting and pricing reasons, providers cannot simply go with the clinical definitions and if they did, policies would ultimately become unaffordable.
GETTING SET
But trying to explain the intricacies of CI cover and the lines within which it is drawn is a difficult task both for advisers to carry out effectively and for consumers to understand fully. This is a particular issue for advisers who dip their toe into the CI market or for consumers that try to compare, contrast and then purchase policies for themselves. Much work is being carried out to raise the levels of understanding that exist around CI.
Casey added: “We ran a series of roadshows in September and October last year aimed at the adviser community and we are running them again at the moment.” They were designed to inform attendees about CI generally – and the Friends Life product in particular – with customer literature available to support all of this.
Over and above the problems created by differences in the CI definitions and the clinical definitions for conditions, Roger Edwards, proposition director at Bright Grey and Scottish Provident, believed that the dynamic of the market itself also creates a certain amount of confusion.“The CI market is a strange beast and we all take part in the illness race where we all keep adding illnesses to our policies to differentiate ourselves. Consumers do tend to remain quite confused around what is covered. But if you do not play the game, then you lose out.”
This is understandable in a competitive market where providers need to continually refresh their policies and keep them attractive to both advisers and their clients.
But it does mean that the attempts at standardisation, as driven by the ABI’s Statement of Best Practice, are always going to be a couple of steps behind the market. As Edwards pointed out, there are now as many non-standard definitions in many policies as there are standard ones.
READY TO GO?
So despite the efforts of the ABI, it is still a little way behind the play, even if its Best Practice efforts have driven significant improvements over more than a decade.
Lakey recently launched the website CIExpert.co.uk to try and address many of the issues around clarity and understanding that continue to revisit the CI market. It is aimed at both consumers and advisers, offering differing levels of access and information to both.
In short, it seeks to provide clarity around what CI is, offer an effective way to compare the policies in the market for the different needs of individual clients, and provide a database of historical policies to enable comparisons with existing cover that clients have and what is currently available on the market.
Explaining the site, Lakey said: “The best plan for a 25-year-old female non-smoker is not the best policy for a 45-year-old male who does smoke. There is then the added complexity of children’s cover, which varies significantly and which some companies do not offer at all.
“There are four age bands and categories for males and females, smokers and non-smokers, and people with or without children. Policies are then rated for the cover they offer in relation to each of these age bands, categories and likelihood of someone having to make a claim. Policies can then be compared on a head-to-head basis in terms of the conditions covered and to what extent.”
In terms of the database of historical CI policies, Lakey said it is incredibly important for advisers to be aware that while older policies tend to cover fewer conditions, they often have wider definitions and this can make a major difference in the scope of cover that is offered.
In the past decade, the CI market has made significant steps to reduce the number of claims that it turns down, improve the clarity of its policies and applications, and educate the advisers that sell the insurance.
This work will continue, although the complexity of the market means there will always be more that can be done.
But 2013 is likely to provide fresh challenges as providers reposition themselves in light of the tax changes and the ECJ gender ruling. This will provide exciting moves in the market for advisers and their clients alike.
