Next month the Association of British Insurers' (ABI) critical illness (CI) working party will announce the proposed changes to the CI definitions. What definition changes are expected, what would be welcomed, and what impact will this have on intermediaries working in the protection market?
Market views
Jason King, Life Policies DIrect
The current ABI review is probably the most important in its history. The reassurer's need to tighten definitions must be balanced with consumer requirements for flexible policies, and have clear and fair definitions that will facilitate valid claims. Stuck in the middle is the intermediary who needs policies that can be easily benchmarked to ensure consistent, and litigation free, advice. In essence, for CI to have any chance of continuing in its present form, all parties need to gain something from the review.
All definitions will be under review and I expect most to be tightened, in particular cancer, heart attack and stroke, to remove low grade and minor, easily treatable conditions. There are also some newer definitions, such as children's cover, that would benefit from benchmarking. Cover varies between providers and this is now a top five claim condition. Total and permanent disability (TPD) as the number one area of declined claims also needs addressing and some form of benchmarking on claims support would be interesting.
The key benefit for intermediaries would be to ensure that the future of CI in its present form - for which the consumer has demonstrated a preference - is made more secure. Premium rates will continue to stabilise and may even fall, plus it will be easier to identify the higher quality providers.
Alan Lakey, Highclere Financial Services
The difficult balance is to design a suitable CI model which is concise, unambiguous and fair to both the consumer, provider and reinsurer. Providers and reinsurers have consistently bemoaned the current CI concept of named critical events suggesting 'lifestyle impact' as a more palatable method of defining disability.
Lamentably, this may well be the future of CI. However, it seems that a gradual erosion of the current claims definitions is the chosen way forward in the short term. This is to be applauded because the lifestyle impact design is surely unmarketable and impractical. Additionally, any financial plan that allows an insurer to deny a claim on subjective grounds is heading straight to the Financial Ombudsman Service.
It is likely that adjustments to the cancer and stroke definitions may be announced, and possibly a variation of the heart valve replacement definition. On a personal level, I would applaud a change to the heart attack definition to once and for all clear up the question mark over silent heart attacks.
So far, the ABI has not involved itself in wordings for TPD, leaving it to each insurer to choose from the myriad of variations. This is the most confusing area for both consumer and adviser alike and is responsible for the highest numbers of refuted claims. Whether looked at now or later, it is an area requiring attention. In a perfect world the definition would be occupation based, however the trend is toward functional ability testing and I fear this may be contagious.
Rod McKie, Scottish Equitable Protect
It has to be acknowledged that despite short-term resilience, the current CI product is unsustainable in the long-term. The ABI's creation of the CI Statement of Best Practice, which standardised definitions, has helped to create a healthy and competitive market. But medical advances are forcing up actual and expected costs, so change is inevitable in order to continue to meet customer need.
Given the pace of medical advances, we anticipate the working party will amend those definitions which we are all now aware are at risk from change to their 'critical' status. This is due to changes in diagnostic techniques leading to earlier diagnosis, and new, less traumatic treatments. In other words, a rebalancing of expected cost/premiums and customer need should be at the heart of the ABI changes. While it is suspected that cancer, stroke and high incidence conditions will be most likely to change, we expect that these developments will still preserve a core level of cover.
Peter Le Beau, Le Beau Visage
It seems churlish to criticise the greatest sales success in the protection market in recent years, but it is now time to really evaluate CI.
Under the new regulatory regime, I do not think that CI can be recommended over income protection (IP), because if you are looking at a product that is designed to cover serious illness, as the two biggest causes of disability, stress and musculo-skeletal problems, are not covered under CI policies.
CI coverage proliferated into the meaningless at the expense of the really valuable some time ago, and the ABI has done some good work in trying to address this. But if we really want to look at providing lump sums and income in one product, we need to find a hybrid product that does a different job to CI.
Some might ask what about TPD? But how can you offer, with any confidence, a product with a declinature rate of around 50%? It is meaningless, it is dangerous, and it is an invitation for more bad publicity, which the industry needs like a hole in the head.
Fortunately, experienced people with a real understanding of marketing and risk are assessing the situation and I would encourage them to be radical. If we have a flawed product that sells like hot cakes (CI) and a good product that sells like stale ones (IP), surely it cannot be beyond the wit of the industry to devise a solution that provides relevant cover and a mix of capital and income. I think that would really meet customer need.
