Severity based protection payments have become more common over the year. Phil Jeynes explains why in his overview of 2011
After the turbulence of 2010, the provider community stabilised this year. Yes, three became one with the consolidation of Friends Provident, Axa and Bupa under the Resolution banner but otherwise, despite persistent rumours and some internal reviews, all the major players remained in the game.
In fact, there were a good number of product launches and revamps in the protection space, starting with PruProtect launching seven products in quarter one, and including Aviva and Bright Grey adding new critical illness (CI) conditions to their plans, as well as including partial payment categories for less severe conditions, such as breast and prostate cancers.
Friends Life's much anticipated CI product emerged as a rejuvenated version of the old Bupa plan with a good number of enhancements - not least the addition of two partial payment conditions.
Clearly, severity based payments are the future of the critical illness product and it is good news that other insurers are following this path. If anyone doubts that covering less ‘critical' illnesses is not a worthwhile step, a look at any of the cancer support sites set up online should persuade you.
"I went into this little room and they told me that I had cancer in situ [of the right breast]. Now, the only word I heard was cancer and I was on my own". That is a quote from one such website. These are the people we are in business to help.
It is right that we as providers pay an amount proportionate to the impact such a devastating diagnosis would have on one of our customers. In fact you could argue that that is what our customers would expect and many CI complaints centre around this misconception.
What is particularly gratifying is that there are now several protection offices whose partial payment conditions go that vital little bit further; vital, that is, when one considers that 69% of ductal carcinoma in situ are treated via conservation of the breast (lumpectomy) for example. Covering just mastectomy, while ignoring this more common treatment, does not seem logical or right.
Small Distinctions
Such seemingly small distinctions are what the discerning adviser should be aware of when recommending cover for their client. Having protection for prostate cancer should be a key consideration given it is the most common cancer among men, but knowing that a plan pays out on diagnosis as opposed to treatment, can be the difference between a customer using their payout to choose where and how they are treated, or being compelled to follow the route defined by their geographical and financial status.
Likewise, being aware that a treatment such as the one recently undergone by Tottenham manager Harry Redknapp (coronary angioplasty) is not covered at all by standard CI plans and, even among those who cover it as a partial payment, for some it is a requirement for at least two arteries to be narrowed by 70%, is invaluable to the informed intermediary.
Nobody is suggesting for a moment that brokers should become medical experts, or that they should be discussing the minutiae of a particular insurer's policy wording when making a recommendation, but we should expect more and more movement towards severity based contracts in 2012 and beyond, so an understanding of some of the more common conditions is advisable.
Many advisers are already on the ball with this sort of detail, using their knowledge in order to recommend the most suitable contract and avoiding being caught in the price trap; a fate which awaits any seller of protection unable to substantially differentiate their service from that available via the internet. The old adage remains accurate: sell it on price, lose it on price.
Incidentally, Swiss Re's recent research shows that an IFA remains the most trustworthy source for protection advice in the eyes of the consumers they polled, but the internet is extremely close behind.
What many advisers struggle to grapple with is the nature of a plan which is no longer an all or nothing proposition. Traditional CI cover is, on the face of it, incredibly simple - you suffer one of the stated conditions (and meet the particular criteria set by your provider) you are paid the sum assured.
Good News
The good news is that the general public is familiar with how insurance contracts operate, for example, if you make a claim, the insurer pays you an amount commensurate to the damage and cost incurred. This is precisely the way partial payment contracts work. It could be argued that this is simpler to explain than a contract which protects against some illness, not others and then only if a specific set of criteria can be met.
In terms of the intermediary market in general, there was less cause for celebration this year, particularly for those in the mortgage world, where a stagnant housing market meant another year with little by way of new business.
Indeed some of the statistics around first time buyers are quite startling: according to the council of mortgage lenders, the average deposit for those purchasing their first home was £26,582 in the first quarter of 2011, as compared to just £12,516 in the same period four years ago. That amounts to a staggering 87% of the average First Time Buyer's annual salary. Given the well known statistics about personal savings, one can only assume some help from mum and dad (or grandma and grandpa) is being provided.
Having said all that, many people are no worse off now than they were in the pre-credit crunch days. Moreover, a good number of your clients will be better off now than they have ever been; yes their utility bills may have risen, but with mortgage rates at such a sustained low the ‘pinch' they are feeling is psychological (a result of constant media messages that the end, economically speaking, is nigh) rather than financial.
As is so often the case, the most fertile ground in terms of new business for 2012 will be existing clients, with the opportunity being the use of new products and initiatives in order to generate conversation and provoke thought.
Opportunities
Aside from the new concepts and products which providers will be launching during the coming twelve months, there already exists several huge opportunities for intermediaries to tap into with new and existing clients alike: Whole of life cover is a wonderfully simple type of cover to understand and explain. It also matches perfectly with the changing life expectancy and career span of the UK population. Indeed, the number of employees aged over 65 has doubled since 2004.
We know that the product is popular, as thousands of those buying ‘guaranteed over 50s' type plans each year will attest, but what few realise is that in many instances the cost of a full whole of life plan is not prohibitive, even when compared to simple term assurance.
Business protection is a similarly straight forward proposition and any adviser not yet cracking this growing market should speak to providers and take advantage of the training and support we have on offer.
One can also only agree with Tom Baigrie of LifeSearch's sentiments about the huge potential for family income cover to be givengreater focus as a means of providing bespoke cover at an affordable price. Next year will not be without its challenges.
Among other things, gender-neutral pricing will arrive. This almost happened in 2011 but a stay of execution was given by the EU powers and actuaries were permitted to use their knowledge of the differences between male and female lives for a final few months. How the new pricing model will look in the flesh is something that each provider is keeping close to its chest for the time being.
It is likely we will welcome many new sellers to the protection arena in the lead up to the Retail Distribution Review, as firms review their business models and explore new business streams. A big focus for us is to ensure we continue to have the resources in the field to support these entrants.
The days of tagging some basic life cover to a mortgage sale and getting by on volume are gone and not coming back in the foreseeable future, the great news for 2012 is that product choice has never been so good and opportunity for protection sales abounds.
Phil Jeynes is head of account development at PruProtect
