Market views: Free cover limits on individual protection

At a recent critical illness (CI) conference, it was observed that a lot of the individual market’s underwriting problems could be reduced by using a low free cover limit (e.g. £50,000). Would bringing this into line with group business be helpful to you?

Peter Chadborn, Plan Money

A common adviser frustration is that protection underwriting has got progressively stricter over recent years and this is a view we would concur with.

This position is fuelled by the constant downward pressure on premiums by ill-informed price-driven advisers and aggregator sites, so something needs to reverse this trend and make transacting protection business more appealing.

The obvious answer to this question is “Yes, of course”, but I’m not particularly confident this proposal will materialise.

It seems to me that for every good idea the industry has, there is a queue of doubters waiting to poor cold water on it.

Perhaps I am being too harsh, but as we have learnt from Greg Becker’s excellent column in COVER, there are innovative ideas being developed and implemented from all over the globe that are proving effective in ­facilitating greater consumer engagement with simple protection provision.

If this idea can be implemented, then I would see no problem with a low limit because we regularly recommend modest CI cover until anticipated retirement age as a minimum level starting point for people with none in place.

Any life office who leads with such an idea would really steal a march on the competition.

Demonstrating the industry direction, RGA’s Mick James says they have floated ideas (with HMT) of non-underwritten £25,000 life plans offered as a “starter pack” to bring more consumers into the market.

Industry collaboration is needed to create such “standard products” filling the gap the Treasury’s Simplified Product work is aimed at.

Wayne Jackson, Premier Choice Group

In principle, this is a very good suggestion as this will give access to cover (without the need for medical underwriting) for many people who would not otherwise consider taking out such protection, either because of their medical history or an unwillingness to complete lengthy proposal forms.

Such cover has helped in the group market, with many people getting protection that they would have been declined for when proposing individually.

We had one client with a serious heart complaint, for which obtaining individual protection was out of the question, but we were able to get group cover where a successful claim was submitted for a completely unrelated cause.

But people need to be aware that cover for any pre-existing condition that would have led to a claim will be permanently excluded and related conditions do carry a linked condition waiting period.

The term “free cover” is in this case misleading, as leading insurers refer to it as an automatic entry level.

Therefore, as long as this was clearly explained to avoid future bad press, such an approach could really expand the market and help bridge the protection gap.

The availability of this type of product could complement life assurance policies with significantly higher sums assured on a life-only basis.

To add critical illness (CI) cover to these policies at a similar level would not only substantially increase the premium, but also involve more stringent underwriting.

Thus, writing a policy alongside for a modest amount of CI with free cover limit has to be an attractive position to the market. Some affordable cover is better than expensive or no cover at all.