Critical Illness - Taking things back to basics

The four most popular conditions claimed for – ­cancer, heart attack, stroke and multiple sclerosis (MS) – account for about 80% of all critical illness claims. This is understood to be fairly consistent across the insurance industry. So, one would imagine, these same conditions account for around four in five claims paid under a severity based CI product.

But – and it is a big ‘but’ – for standard CI cover, customers who meet ABI definitions for each of these conditions could expect to receive 100% of their sum assured under a traditional CI policy. However, under severity based cover definitions, the same customers could receive as little as 25% of their full sum assured for cancer, stroke and MS, and 50% for heart attack.

In other words, the very same conditions could receive proportional payments if a claim is made under a severity based policy, whereas they would be paid in full under traditional policies.

There is, of course, the argument that severity based cover is just that – and a person who has a less serious condition could receive a larger payment if their ­condition worsens.

But one could equally argue, would they really want to wait for their condition to deteriorate? And would the customer really want to go through the claim process twice if they could have received the full payment upfront?

‘One less thing to worry about’

There is also the point that many CI policies are ­purchased in order to cover a mortgage. We know that customers who claim on CI will often say a payment means it is “one less thing to worry about” – that they can concentrate on getting better knowing the mortgage is taken care of. But if a payment is 25% or 50% of the sum assured, this could mean the claimant needs to keep working to stay on top of their bills.

To be doubly sure there are no wild accusations, we have in-depth analysis of CI claims paid out for these conditions over the past quarter. In the vast majority of cases, had the customer held a leading severity-based product they would have received partial payment, whereas with a traditional product the customer would have received a full payment.

The intention here was not to knock the opposition. Any products which help provide much needed cover to UK families are to be welcomed and applauded. But it is important that advisers and customers understand what they are buying and where there are potential cons – as well as pros.

As an industry, we should be looking to help customers when they need it most – with simple, understandable products that provide crucial financial support at a time of need.

Innovation is great when it adds value. But if we can get the basics right, demonstrate an excellent claims record and offer that crucial support when it matters, is innovation really a solution or a confusing distraction?  

Robert Morrison is chief underwriter at Aviva