Kevin Carr puts forward a solution to keep clients informed as insurers change definitions in critical illness policies.
As reported in the personal finance press recently there could be a solution to the ongoing issue of ever changing critical illness definitions.
The recently highlighted case of a 44-year-old amputee has provoked much industry and consumer response.
The policyholder had lost one leg as a result of a serious road accident, but for the policy to pay out he needed to lose two limbs, rather than one.
While it was pointed out that this was technically the correct decision the challenge for the industry is that once policies are bought, they are typically not updated.
Even when definitions improve for new customers.
Premiums and T&Cs are typically set in stone for the policy term, which historically has usually been a good thing, but with so many changes to the policy definitions every year it can mean that someone buying a newer version of the same policy might get better cover in some areas - and worse cover in others.
What made this example of particular interest to the media was that most insurers have since moved away from the ‘two limb' definition and pay out on loss of one limb.
Comparing products and definitions with detailed systems currently available in the market helps advisers to understand the differences because when insurers make changes they aren't always positive for the customer - in some areas you want to keep the old policy, but in others you want the newer one.
Personally, I have an older style policy with Aegon and a newer style policy with Vitality for this very reason.
Likewise the severity approach can help to remove the ‘all or nothing' legacy with CI insurance.
However, I've been asking around to see what more could be done. I've been asking how feasible it would be to write to existing customers every year pointing out that some definitions have improved.
Policyholders, via their adviser, could then be asked if they wanted to keep their existing definitions or pay a bit more each month to move to the new set.
Only those definitions which have improved for the customer would be changed - so there would be no risk of consumer detriment.
Once priced the insurers should pick up a decent amount of additional premiums and distributors could charge a fee or receive new commission on the added cost.
All communications would of course stress the importance of speaking to the adviser.
I've spoken with two reinsurers who say the idea is possible and Peter Chadborn of IFA firm Plan Money agrees: "This is a very good idea because from an adviser's point of view it prompts dialogue with protection clients and so promotes importance of reviewing their cover."
I'm sure this isn't a new idea - it may well have been suggested, priced and even tried before now.
There are of course a myriad of challenges with this idea, not least policy administration, legacy systems, pricing, communication and more.
They have priced the product based on those definitions at the time of applying.
But the industry needs to move forward and if the idea is possible there's enough smart brains around to make it happen.
The key message is that customers should be given the opportunity to upgrade when changes are made, because that is both right and fair.
Kevin Carr is chief executive of the Protection Review
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