Ahead of the 40th anniversary of the first critical illness policy this week (6 August), Jaskeet Briah speaks to protection experts about the next steps required to take the product forward.
Although critical illness cover (CIC) was praised by experts for its effectiveness, the template used when the product first came to the UK in 1983 is the same one being used today, with a far greater breadth of conditions now covered.
"As a consequence, you have to question if the plan would have the same template if was designed today for the first time, and I don't think it would," says Alan Lakey, CIExpert founder and director.
The product comprises medical jargon and convoluted condition wordings, which he notes is difficult for both customers and advisers to understand, except for a handful of intermediaries.
Although it's important to note that CIC is "not broken", there are aspects of the product than can be evolved further, according to Emma Thomson, head of protection development at Sesame Bankhall Group.
With consumer's changing circumstances, Thomson recommends that insurers increase the flexibility of products, such as through guaranteed insurability options, so customers won't have to completely change their policy or take out a new one to fulfil their new needs.
She also suggests that CI be more inclusive for people with existing health conditions so a wider customer base can access the product.
"What HSBC has done is great to make sure that people with diabetes can access this valuable product, but we should also look at other conditions," Thomson says.
"For example, because I've had cancer, I can't buy CI cover but I'm at no higher risk of having a stroke, heart attack or losing my eyesight, so there should be other options."
Meanwhile, with medical advancements, Robert Morrison, chief underwriter for health and protection at Aviva, details that the sustainability of CIC is key going forward by ensuring the product remains viable.
This could mean higher incidence rates of certain illnesses and prices might have to go up, he adds, but that might also create reductions: "You have to continually monitor this as medicine evolves to make sure that pricing is reflective of the risk cost at that particular time."
Outcome-based approach
Adopting an outcome-based approach was highlighted by Lakey and Louise Colley, head of retail protection at Zurich, as one way to move CIC forward.
Colley says: "It was called the conditions race and whoever had the greatest number of conditions always tended to be the top of the charts. It was all about adding conditions and the challenge was that the profitability of those conditions paying out were minimal."
Although Colley notes the industry has made inroads on ensuring CIC is not a numbers game, there is "more to play in that space" and to evolve CI in the coming years.
Specifically, she suggests that CI can evolve by consolidating the conditions covered within a policy and moving to an outcome-based approach rather than a conditions-based one.
"For example, insurers may choose to pay out for all diseases of the same type once a specific threshold is met, such as a certain severity level or undergoing a particular treatment," Colley explains.
"This way fairness is improved because all such conditions are treated the same and a successful claim isn't dependent on whether a condition appears on a provider's list or not."
Lakey adds that by combining certain conditions under one heading, such as any condition that requires an operation on or surrounding the heart sac, this will take away any dispute on the seriousness of a health issue when it comes to claiming.
Ultimately, instead of basing plans around condition wordings, Lakey suggests building around an outcome that involves losing some portion of your ability to think, understand and relate to other people on a permanent basis.
"Instead of having 40 conditions that cover 100% payments with an additional 50 that pay out a smaller addition sum, I would be looking to try to narrow it down to less than 20 conditions," he explains.
Learnings from Australia
To evolve CI in the future, Johnny Timpson OBE, principal of Johnny Timpson Consulting, reveals there are several learnings we can take from the protection industry in Australia to create fair value for customers, particularly on terminal illness in particular.
In Australia, a terminal illness claim will be paid if a treating physician and one other independent physician agree that a life expectancy is below two years, a method which Timpson says should be implemented in the UK to improve trust in the terminal illness definition.
Additionally, when customers in Australia get a quote for life or CI cover, the quote details the average time of claims payments by company.
"That enables the discussion to focus not just on price and the breadth of the cover, but equally the claims service provided by an insurer," Timpson comments.
"That approach will help consumers make informed decisions about value and service as we embrace Consumer Duty."
50th anniversary
With ongoing medical advancements and a limited consumer understanding of CI, protection experts emphasise the importance of ensuring the product is accessible to all customers by the 50th anniversary.
In the short-term, the Association of British Insurers' (ABI) model wordings update is set to be implemented by January 2024 to support customer understanding, and CIC is predicted to look quite different by then.
Lakey details that most companies haven't yet made any changes for this update, meaning a host of alterations will be made to CI plans in the next six months: "Companies will take this as an invitation to make some changes to their plans to adjust their market position, meaning improvements to plans and possibly increases to premiums."
Rose St Louis, protection director at Scottish Widows, adds that keeping CI definitions as simple as possible will ensure that customers' needs are supported day in and day out, including at the claim stage.
"The challenge remains as to how we continue to educate and increase consumer understanding of CI cover and make it more accessible to the diverse populations we support," St Louis shares.
"In the next decade, I'd like to see the industry be bold and focus on increased access to CI cover for everyone, with added flexibility through different life stages allowing consumers to take up a policy that changes as their needs change, perhaps also through creation of more hybrid products."
Thomson would also like to see a hybrid product between CI and income protection (IP) to ensure customers don't fall through the net of not meeting condition definitions as total permanent disability (TPD) "isn't really fulfilling that anymore."
Thomson says TPD gives a "false sense of security" as it's difficult to claim on and doctors can struggle to prove an individual is totally disabled with no chance of recovery.
"Buying IP means you could be losing out on a CI pay out, and if you buy CI cover it could be that you can't claim on something that is stopping you from working and earning, so a hybrid product can reduce the cost and help a consumer to spread their bet."
Meanwhile, Colley recommends the introduction of non-contestability guarantees; with medical advancements, insurers have the potential for in-depth knowledge about customers, meaning claims wouldn't be contested as "we know everything about them and there's nothing that's untoward."
With these medical advances, Morrison says it's important for providers to continue providing access to as many customers as possible: "When we see the evolution in medicine and treatments, we need to stop and see how this improves access to customers."
Specifically, accessing global treatment through value added benefits is how CIC can evolve, Morrison explains, as it will support customers to navigate lengthy NHS waiting lists.
Timpson adds: "Maurice Barnard used to always say to me that the best kind of claim is not to have one in the first place," and so the insurance industry has a "vested interest" in working with policyholders to help improve their physical, mental, and financial health and wellbeing.
He shares that Barnard was supportive of the steps that Vitality have taken to increase consumer awareness of their health, diet and exercise, and he believed that every insurer should follow suit so customers can continue working and prevent developing the condition that would lead to a claim.
"The big the next steps for CI going forward are to build on the good work that Vitality have done and really embrace prevention," Timpson concludes.
