Individual critical illness: KISS and make up?

With changes afoot in the critical illness market, Owain Thomas asks if its time for the sector to put aside its differences and move forward

Life is full of catchphrases and acronyms that are designed to ease our way through this world and improve interactions for ourselves and those around us.
In the last few months, it seems the protection industry has been taken over by a spot of KISS-ing.

Sadly, this is not of the romantic variety (although several providers have been getting into bed with one another of late), but more the ‘Keep It Simple, Stupid’ ideology prompted by the Treasury’s Simple Products discussion paper.

While the focus for the discourse has predominantly fallen on income protection (IP), Alan Lakey, principal of Highclere Financial services, suggested that critical illness (CI) also has the potential to prove worthwhile in this arena.

Last month, COVER included a piece marking the 25th birthday of CI and it seems Lakey feels now might be a good time for the product to return to its roots for this simpler purpose.

Explaining the split

“When CI first meaningfully started in the late 1980s, every provider offered two plans: a core product with the five most common conditions and another with something like 15 added on,” he said.

“I think most advisers sold only the comprehensive one and so the structure fell apart. But there’s an argument to say that should be there as an option. There are two schools of thought about the simple products debate and I’m not entirely sure where I sit.

“Simple plans do sell because they are simple, but equally, why would an adviser offer a plan to a client that has only five conditions when another offers 42?”

This apparent contradiction doesn’t mean Lakey is partisan one way or the other. In fact, he believes that if used creatively, the two could be intertwined to improve customer outcomes and be a valuable tool for advisers.

“There is a polarisation where people think it should be either simple or comprehensive,” he said. “But both are fine and it’s nice to have a choice.”

“I would love to recommend a comprehensive plan. However, if it’s unaffordable but the client appreciates the need, by going for a core plan they cover 80% of claims at less than 80% of the full product cost. Then hopefully, in a couple of years’ time, they can afford the full version.

“If companies offered this two-tier system, instead of re-broking, you could just upgrade and as the client has been underwritten for the main cancer, heart attack and stroke conditions, maybe within a certain time (perhaps five years) the upgrade would be possible without any further evidence,” he added.

This solution would be one way to address the potential adoption of simple products, but it also ignores what Lakey sees as the key need within the industry: consumer demand. “The major problem that these people have all missed is that it assumes people will flock to buy our products once they’re simple and once they’re cheap. That simply isn’t the case and history tells us it is not so, such as the stakeholder pension project.

“We need to get away from the idea that we can design a product, wave a magic wand and it will appeal. It’s not that the product appeals or doesn’t appeal. It’s the apathy of the public. Education to some extent helps, but what does work is a close family member or friend dying or becoming ill.”

The simple products venture is not the only major impact on the sector over the last few months. Far from it.

With CI often seen as the most complex policy in the protection family, it is also one of the most active markets as providers jostle for position and adjust their offerings accordingly.

Add to this the regular reviews conducted by the ABI of the product’s Statement of Best Practice (SoBP) and there is little time to breathe for those active in the sector.

The latest revamp of the Statement eventually decided not to rename the Total and Permanent Disability (TPD) condition section, but did re-organise it into five standardised headings that will be applied across the industry.