The updated version of the Association of British Insurers' (ABI) statement of best practice for critical illness (CI) cover is soon to be revealed. The ABI believes the revised document will help consumers better understand how CI works. Will it succeed?
Market Views
PETER LE BEAU, Le Beau Visage
One of the most-quoted business maxims of the current age is: "If it ain't broke, don't fix it".
I appreciate the sentiment but it is not one I could apply to CI insurance at present.
It may be unduly harsh to claim this product was broken from the outset, but it was possible to see flaws in the concept of a guaranteed version of the product even when it was first produced.
The reinsurer I was working for at that time immediately spotted the danger of advances in medical treatment.
Others glibly pressed on, encouraging offices as they went to increase the number of conditions covered to ultimately ridiculous degrees. Little or no attention was given to "future-proofing" the product.
Given this situation, the ABI committee has agreed to regular reviews and the last one undertaken has provoked criticism from several sources, including suggestions that it has made a complex product even more difficult to understand.
My sympathies are very much with the committee, which contains a number of people for whom I have enormous respect.
However, they have been left with a thankless task. In the new regulatory environment, and 20 years after it appeared on the scene, we need to rethink the way CI interacts with other products, particularly income protection, and stop trying to put lipstick on the face of a pig, albeit one IFAs and salesmen have found to be particularly seductive in the past.
Fixes are not what are needed - a new appraisal of how to meet real customer need is.
MARKET VIEWS
NICK KIRWAN, ABI CI working party chairman
Clarity was one of the most important objectives of the working party review of CI insurance.
To understand the key issues, you just need to look at why CI claims are declined - not meeting the definition which reflects a lack of clarity about the cover, and non-disclosure. The ABI is addressing both of these.
Complaints often reach a wide audience through the media that the person has had "the wrong kind of critical illness". This suggests we need to be clearer that only the listed illnesses are covered. To address this, the ABI suggested either changing the product name, including a standard description of the product in all companies' literature, or both.
At the illness definition level, the ABI proposed making the heading of each illness more descriptive to make it clearer to consumers and advisers that, for example, not all cancers are covered. If implemented, we hope these measures will cut the number of declined claims not meeting the definition.
To address declined claims through non-disclosure, the ABI has taken feedback from the Financial Ombudsman Service about the types of questions that trip consumers up. Following a separate consultation last year, the ABI is introducing extensive guidance to help make application forms clearer.
These measures are definitely a step in the right direction to improve clarity but it is only the start of the journey. Next on the agenda is total permanent disability and considering an entirely new product.
ALISON TURNER-HOLMES, Skandia
How can such a wonderfully intended and simple product end up hauled over the coals and create so much controversy?
The document is attempting to resolve problems around the complexity and diversity of conditions covered and the idea is commendable. It should bring more regulation and understanding to complement the existing minimum wordings of 20 definitions. Some of these conditions require more clarity to protect providers, brokers and clients.
The current proposition, however, negates their intentions of clarity for consumers.
The proposal to lengthen the headings of the definitions is unnecessary. If the heading is already part of the definition it surely doesn't need to include all the definitions. A suggestion to amend the cancer definition appears almost to encourage providers to include only second stage cancer cover.
This could mean up to 30% savings on premiums in some areas due to the number of claims that would not be paid out compared with the current definition. Imagine trying to explain to a client who has just been diagnosed with cancer that the policy will not pay out until they get stage two cancer?
Complaints will escalate for advisers and providers while consumer confidence will disappear.
Implementation of the paper will encourage a bigger gap in providers' cover and could create consumer confusion.
DAVID STEWART CROW, Priority Healthcare
The upcoming changes in CI definitions mooted by the ABI will not be helpful to the public in any way. The vast majority of the public will be unaware of them, and any publicity will result in a negative effect as the perception is that changes by insurers are always for the worse.
Existing policyholders will become unsure about their contracts no matter how much publicity there is about these being immutable, and it will be left to IFAs and brokers to reassure clients, and explain the new policies to prospective clients.
This brings up the real problem - that there is confusion among us and we do not know yet what changes there will be.
However, I am certain the position will still leave scope for variation not only in amount of conditions covered by each insurer, but also in definitions. Will certain major insurers still offer the "silent" heart attack definition while others do not? In my view, the problem is not public awareness, but that not enough practitioners who offer CI at present are specialists - they themselves do not sufficiently understand the contract variations available, and this is reflected in the advice they give.
Price, not the scope and nature of the contract, is too often the governing factor in advice. Changes by the ABI will probably add to this situation and make the problem worse.
