In a critical condition?
Johanna Gornitzki: To kick off today’s debate, let’s look at the current issues facing the critical illness (CI) market. Why are sales falling?
Kevin Carr: There are a couple of factors to start with, and the first one is the rise in price of the cover we have seen over the last three or four years. In particular, the price rises we saw around 2002 when we saw increases of 50% or 60% overnight from a number of companies. We monitor the competitive end of the pricing market and, in 2002 and early 2003, the price of guaranteed CI cover roughly doubled. So, I think there is a simple supply and demand argument going on here. In addition to a rise in price, there is a lack of consumer trust in the product. There is also a lack of understanding, not just from consumers but from those selling the products, on both the advised and non-advised side.
Johanna Gornitzki: How important is price when it comes to selling CI insurance?
Bob Perks: I think price is becoming more important, coupled with rising interest rates and also rising house prices, which means larger mortgages. People‘s budgets are up to the limit just meeting the mortgage payments without being able to afford the additional cover, whether they want to or not.
Kevin Carr: I think there is a perception that CI cover is dear. But it isn’t. The point is that life cover is cheap. But it is cheap for a reason, as it is far less likely to happen than all of the other insurable events that we can insure for, be it CI, income protection (IP) or private medical insurance. Because it’s cheap, it makes other products look expensive.
Stuart Hill: Looking at its complexity, clearly the product and its fundamental structure has not changed that much over the years. So, is that more of a realisation that it is a bit more complex than people thought?
Bob Perks: Some of it has to do with the fact that different providers have sought to differentiate themselves on product features and covers to try to get away from just a simple price comparison. For example, a Pru product came out recently that seeks to do something very different and I think other providers to a degree have gone down that route as well. This has meant you can’t compare the policies like-for-like very easily.
Johanna Gornitzki: Looking at the new CI definitions that came into effect in April, do you think these definitions will have a great impact on the CI sector? Will they help improve clarity among consumers?
Alison Turner-Holmes: I don’t think it will have any immediate positive effect on sales. What Scottish Provident is hoping is that it will make claims far easier to assess. There will be more clarity when it comes to the claims stage and therefore less disputed industry claims, less bad press and more consumer confidence. So, long term, this could be quite good for the market itself.
Kevin Carr: I think the Association of British Insurers (ABI) review may have an indirect impact on sales in that we are seeing prices fall. Prices went up quite dramatically three or four years ago, but we must have had a dozen CI price cuts this quarter. Whether those two are directly or indirectly related, we could probably debate for hours. But I think that if the industry is more relaxed and certain of its future, in terms of paying claims, then that will have an impact on price. If prices are falling, which they are, then that would have a knock-on effect on sales. I don’t think there will be a direct influence, but I do think there is a link between the ABI work and the fact that we are beginning to see prices fall for the first time in four years.
Andrew Cook: I would agree that the ABI definitions, from the consumer’s point of view, are not something that suddenly make you want to run out and buy CI cover. But, it will make things easier to understand when it does come to a claim. I think what is possibly pushing price down at the moment is more capacity coming into the market from reinsurers.
Roy McLoughlin: I am a little worried that there hasn’t been enough publicity given. As an IFA, the only reason I know about the changes is because I am on several committees, but I can’t recall any broker consultant coming to our offices and telling us anything about this. In fact, I just did a little experiment this morning and rang two up and said ‘do you know if there is anything different about what has happened today [2 April]?’ And they said ‘no’.
Alison Turner-Holmes: We have heard that the Statement of Best Practice has not been communicated as widely as it should have been. As a company, we decided to mail all our advisers to say this is what is happening, this is what it means to you, and this is what it means to your clients.
Andy Milburn: The real issue here stems from the fact that people perceived that the ABI was responsible for communicating this with the industry. But the ABI only has a certain amount of resource. We commissioned an Exchange survey last summer, and it turned out that 81% of IFAs did not know that the changes were happening. That was immediately after all the coverage that we had in the trade press from the ABI’s press release and from the announcements from people on the ABI Protection Committee. Alison is absolutely bang on in that every provider should have an educational website, should be offering training sessions for advisers, should be offering guides on what conditions are easier to claim on, what conditions are harder to claim on, what conditions have not changed, and what the impact will be on claims.
Kevin Carr: One other aspect of this debate is that the changes this time are suggested as being neutral. There are some good things, there are some not so good, and I have been told by many people that, from a price point of view, it is all neutral, it all evens itself out in the long run.
Jennifer Gilchrist: I think back in 2002, 2003, with the changes to prostate cancer, it was much more evident that the cover was going backward. This time it is a plus and minus game and the case for each individual client will be different.
Craig Thornton: One of the things you have to bring into this debate is what is the risk going forward. Even if you tweak, change or clarify the definitions today, that may change in the future. One of the key concerns that was driving the capacity that Kevin was talking about earlier is the fact that there was an awful lot of uncertainty about where medical advances may take claims experiences going forward, which was creating nervousness about guaranteeing rates. Certainly, in the changes that have come through, there is a degree of comfort being provided through the definitions about the future. That is an important sustainability point for the product itself, in that, in some of the definition areas, it is now easier to see how that protects the risk-takers going forward in the context of changes in medical advance. There are very long-term guarantees being provided here.
Johanna Gornitzki: Looking at the new guidelines, do you think they will help improve clarity around the cover or are we still facing the same problems?
Craig Thornton: Undoubtedly, I think some of the changes will make it easier to take a view on the future. We are back in the market, and that is based on the view you take as to the robustness of the definitions. The definitions are one among many that have changed since Swiss Re left the market at the end of 2002. And the combination of all of those things makes it more sustainable.
Andrew Cook: I know the definitions are future proofed, but doesn’t that just make you think it is the wrong product? From the consumer’s point of view, as soon as you start to say this is future proofed, to me that would put some doubt in my mind as to why wouldn’t it be? Why wouldn’t it pay out? What is the point of taking it out if there is any doubt whether it is going to pay out or not? Actually what is the point of having CI cover?
Alison Turner-Holmes: Until you have seen somebody young die of cancer with no money, it is probably hard to appreciate the cover.
Roy McLoughlin: I would agree. What really brings it home is when you have a claim. I have had two clients, two ladies who were both in their early 30s, who both had brain tumours. They are now absolutely fine, CI paid out both times, and it completely changed their whole life, and of course, it leads to other business because a lot of their friends have now called wanting the cover. It brings confidence, not only in the consumer, but, I think, quite importantly, in the IFA because there is still a degree of cynicism within our community.
Johanna Gornitzki: Is there room for improvement? Should we see a slightly different CI product in the future, compared to the one we have currently?
Craig Thornton: We do tend to focus somewhat on the negatives. If it wasn’t a good product, then people wouldn’t have been either buying it or selling it for a long period of time. So, there is clearly a place for it and it is clearly an important part of people’s financial planning. Sales are where they are for a whole host of reasons and I don’t think there is any one easy way of stimulating that, because, if there was, I think somebody would probably have done it by now. Therefore, we need to look a bit further afield to start both increasing the ability of people to take out policies when they are going through sales processes for other products or for just their wider protection needs. We also need to start reaching out to bits of the population that don’t have any access to protection to try and plug some of the protection gaps that are quite often quoted in the press.
Roy McLoughlin: If you look at the most obvious person to take out CI, it is someone that is doing their mortgage. But mortgage advisers either don’t sell or are persuaded not to sell CI by the various people that are in charge of them.
Kevin Carr: I couldn’t agree more. I was on the phone for more than an hour to Watchdog last week, answering a question on whether this is just a waste of time product and whether it should be removed. It is the same old story, but if you are one of the people who received any of that £1.7bn that the industry has paid out in the last five years, you would not even be considering asking that question. As Alison was saying, what the product was originally designed to do is not what it is perceived as and has not been for 15 years. It is perceived as a mortgage protection product. It isn’t a mortgage protection product, but that is how it is sold and that is how it is perceived.
Alison Turner-Holmes: Another issue is that, at the point people take out their mortgage, they are up to their maximum budget. And so, CI is the last thing they are going to buy. But there are an awful lot of people who are slightly older and have had their mortgage for five, 10 years – they should be revisited and IFAs could offer them something that they could not afford five years ago.
Johanna Gornitzki: If we improve the service, do you think we will see more brokers selling CI? Especially mortgage brokers?
Roy McLoughlin: Can they afford not to? Because when you do a fact find, if you don’t mention that you have talked to the client about CI, you are opening yourself up to huge problems. So, you should be asking the question anyway and, now, so should the mortgage brokers because they are now regulated.
Bob Perks: Complexity has a lot to answer for. All these products are very complex and a lot of the advisers sadly struggle to cope with that complexity and would rather ignore them. I think product providers have to look at that and ask themselves how to make these products more saleable without people having to spend hours trying to get all the information assembled to actually do it.
Johanna Gornitzki: So do we need a simplified product?
Andy Milburn: The thing with that is that the advisers are then in danger of not recommending something. You need to treat customers fairly. Is it treating customers fairly, for example, to offer something that has 10% less coverage than something else?
Kevin Carr: Take the Virgin Money style product for example. We have been approached by two companies asking whether we want access to that kind of product. And the answer isn’t an automatic ‘no’, but I think the fundamental point is that we probably wouldn’t sell much of it at all because you just cannot justify it. But where it does play a role is a link. If life cover is a tenner and CI is £60, and you look at something in the middle that costs maybe £15 or £20, as a stepping stone in order to change the consumer’s mindset, opening them up to considering something other than life insurance.
Alison Turner-Holmes: I would agree with you, except that, in the past, I have supplied product with two variations. One was a comprehensive list and one was a shortened list. And we sold very few of the shortened list.
Johanna Gornitzki: One of the main reasons CI has been criticised is because of nondisclosure. How can we tackle this problem? You mentioned before that the new definition may help. Is there any other way to deal with this problem?
Alison Turner-Holmes: I think there are lots of ways we can tackle non-disclosure. As an industry, we have addressed it, spent quite a lot of time on it and we continue to spend time on it and improve it. But there are two main issues for claims not being paid and I think everybody overlooks the other main one, which is ‘definition not being met’. And therefore people are claiming when they don’t meet one of the definitions on the policies. So, while we spend an awful lot of time on non-disclosure, I think it is important to look at the other reason as well.
Stuart Hill: Do you think it is likely that you are going to get the average policyholder reading through pages of definitions and layman’s explanations?
Andy Milburn: We don’t. One of the issues that we have been campaigning for is to try and get everyone in the industry to move to an example where you put the case on risk, you are collecting the premiums. But you give the customer three months to read the paperwork, to make sure that they have everything right, and if there is anything they have missed or anything they have got slightly incorrect, you change it.
Alison Turner-Holmes: How many people come across a client and they say “Oh, well I was pretty ill last year, and I had this and that.” Well why didn’t you claim? You are covered for it. “Are we?” So I think there could be more awareness of what it is they are buying.
Craig Thornton: If I was in the position where I did not fully understand what a condition was covering, and I was ill and off work, I would probably at least ring the insurance company and say ‘am I covered for this?’
Kevin Carr: I think there are other things that we can do around non-disclosure. The first thing that I think we have to sort out is unrelated nondisclosure. For me that is the big grey area. I would like to see, and would welcome, work from the ABI, the Ombudsman and any other relevant parties in formulating a standard protocol for non-related non-disclosure, be it ‘we would have doubled the premium so we will only pay half your claim’, for example. Secondly, if companies are going to get a GP report up front, why do we have nondisclosure? You are going to get a GP report and probably a medical up front, why can’t they just have a guarantee?
Alison Turner-Holmes: We looked at GP reports (GPR) some years ago, but, even if you did an electronic GPR, the doctor could restrict the information a provider received. If you sent a piece of paper to them and asked them to fill it in, they would only put down what they think the provider should know.
Kevin Carr: But that is the same at claims stage, surely?
Alison Turner-Holmes: No, because then you have a subject that they can relate to.
Kevin Carr: So what we are saying is the quality of the information in a GP report at claims stage is significantly different from what you get at outset?
Craig Thornton: I think that the industry needs to work to find ways of building up the perception of the industry in reaction to non-disclosure. There needs to be fair treatment of all people in the insurance pool be they claimants or not.
Roy McLoughlin: As an adviser you can often tell if someone is hiding something and I just say to them, look, you have obviously got something to tell me here, you need to put this down, otherwise it is just not worth filling this form out. Because they are not going to pay out.
Johanna Gornitzki: Do you think that all advisers do that?
Roy McLoughlin: No. I don’t think so, but they have to improve because at the end of the day, if there was a claim that did not go through, who are they going to come after?
Johanna Gornitzki: So how do we sort this?
Alison Turner-Holmes: Education. In the exam, there are very, very few questions on CI, how to sell it, how to place it, how to get disclosure. I would love to see the industry step up techniques and understanding to people who are able to advise on CI.
Kevin Carr: But whose responsibility is that? Surely that is the product providers’ responsibility? If you are making complex products, you can’t just let any Tom, Dick or Harry sell them.
Alison Turner-Holmes: We offer all kinds of road shows, training, and things like that. I have been into offices numerous times to train advisers, and there is no desire you may have three people still using their laptop while you are talking, you may have three that don’t turn up, and so on.
Bob Perks: The advice-led market is very often down to very small firms with no training functions. When I started off in a large company, there was all sorts of training. It was put on and there was no question about whether you went or not, no question whether you concentrated or not because we were tested at the end. If you didn’t pass it, you couldn’t advise. That has all gone now.
Roy McLoughlin: I couldn’t agree with you more. The majority of IFAs were in direct sales at some point. We all came from direct sales that were very, very good and they just didn’t let you get away with walking out the back door, and you had to concentrate and you had to listen. I think the problem we have with a lot of IFAs is they consider themselves to be wealth managers now. And the way a lot of IFAs come across, they seem to look down their noses at subjects like CI and IP, which is madness on their part.
Kevin Carr: But look at the regulation. If you are not breaking any rules by not talking about IP, then the rules are wrong.
Johanna Gornitzki: So do we need more regulation?
Kevin Carr: I wouldn’t say more, I would say the current regulation needs to be applied properly.
Alison Turner-Holmes: So could the Statement of Best Practice perhaps look at fundamentals like that rather than just definitions?
Craig Thornton: It needs to be a collective effort. It is a question of working together with the providers and making sure that they understand the TCF principles and apply them consistently.
