Growth in the group CI market is patchy, and in the absence of real product development it is down to advisers to help drive the market forward, writes Georgina Kenyon Click here to download pdf
While sales of group critical illness (CI) have increased this year, industry experts are warning that only a far better understanding of the product and greater advice to increase consumer confidence will have any serious impact on future sales growth.
Latest figures from GE Insurance Solutions show that group CI saw a steady increase in schemes in 2005 with 559 new schemes reported – up from 521 new schemes the year before. Although the report revealed that a number of these would have been rebroked schemes passing between insurers, this is still a healthy number.
However, while the majority of insurers reported an increase in overall numbers of schemes on their books, the number of schemes in the market fell from 1,858 in 2004 to 1,816 in 2005.
Companies such as BUPA have found that, rather than a rise in the number of schemes, existing schemes have increased in size.
Since December, the industry has been waiting in anticipation for confirmation that Swiss Re will re-enter the guaranteed CI market following its acquisition of rival reinsurer GE. This is expected to happen at the end of Q2 this year.
If this happens it will be great news for the future of the CI market, which has been suffering since Swiss Re pulled out of the long-term guaranteed CI market in May 2002.
Tim Dickenson, Swiss Re's UK head of communications, explains that there were various reasons behind Swiss Re's decision to pull out of the guaranteed CI market, including changes to pricing, medical developments which in turn complicated claims, and the mismatch between benefits and needs when it came to issuing appropriate insurance.
But now key changes in supply and demand in the guaranteed market together with better underwriting processes and new work conducted by the Association of British Insurers into the definition of CI has made Swiss Re re-evaluate its position, industry commentators believe.
That said, according to Swiss Re, the company has been contemplating returning to the guaranteed CI sector for some months and it is not simply because of its acquisition of GE that it is considering re-entering the market. Dickenson refuses to give a definite answer on whether the firm will re-enter the CI market but adds that he "remains optimistic it will".
Taking a closer look at the group CI offering, experts still disagree on the significance of it. Most agree that it is not peripheral while some claim it fills a different niche to other insurance. Others even say it is only time before better options are offered.
Nicola Cohen, communications manager at BUPA Group Risk, says: "Group CI is not peripheral but it is a different option and it fulfils different needs than for example life or income protection," she says.
Cohen believes that the flexible benefits market in particular offers great opportunities for group CI growth. This is indicated by nearly 50% of BUPA's group CI business being derived from flexible benefits and 30% of the overall market's group CI business deriving from flexible benefits.
"Flexible benefits packages are very important to the group critical illness market. People want to ensure they can protect themselves in case they develop a critical illness with a good insurance package," she says.
Yet Bernie Hickman, protection director at Legal & General, is not convinced group CI is a good product.
"CI is an important product in the absence of a better protection product. Ideally it would be better to have some form of income protection, but if that is not possible CI is still suitable," he says.
"This is why group CI is still seen as a small part of the employee benefits market and the uptake is pretty slow," adds Hickman.
However, others still see group CI as an important benefit in the corporate sector.
Sue Elliott, principal consultant at Watson Wyatt, says: "Group CI has been seen as important for at least the last five years." One of the main obstacles to selling group CI is the fall in mortgage-related sales.
According to Hickman, the decline in group CI is largely related to the increase in protection premiums a few years ago together with new mortgage regulation and higher house prices, which have resulted in a longer sales process.
"House prices have gone up so affordability is already stretched," says Hickman.
He also believes there has been a knock-on effect from negative views in the press about claims not being paid out, although the exact effect is difficult to measure.
"But people should have confidence in the product they are about to buy. We need people to understand the product and what the product does and to feel confident that if they fully disclose their medical history, they are covered," says Hickman.
Hickman also says one of the attractive features of CI cover is that the decision on whether a claim has met the definition is not down to the insurance company, as it is with income protection, but up to the medical consultant.
However, the obstacles seem to be plenty. According to David Kay, commercial product manager at UnumProvident, one of the main problems selling group CI is that most employers and advisers do not value it enough.
"Employers and advisers focus on pensions simplification. Many employers do not view this product as a main employee benefit," Kay says.
But, Kay explains, by increasing the focus on voluntary, flexible or employer-paid plans, new business will be won.
Kay says new opportunities for business will be found in these schemes with "highly valued employees" where employers are keen to provide top of the range benefits.
This gives employees added incentives in the workplace and is a good way for management to reward key personnel.
This will create a perfect opportunity for advisers wishing to show their clients the real benefits of group CI.
It is in this flexible benefits market that advisers are finding the greatest opportunities. Cohen says advisers can encourage new sales in flexible benefits schemes if they develop their communication techniques.
"Most of the increase in sales in group CI at BUPA have been with the flexible benefits scheme," she explains.
Hickman says group CI does offer advisers opportunities but it is important to understand what the product does and does not do.
Cohen explains that flexible benefits schemes should be very attractive to employees as they are generally very attractive to the employee, easy to understand and very tangible.
One of the main disappointments in the group CI sector is the lack of any recent or real product development.
"There is currently a definite need for a radical overhaul in product development," admits Elliott.
However, there are ideas being discussed in the industry, including staged benefits based on severity, which could lead to new products being developed and this bodes well for the future, explains Elliott.
There are few reasons for complacency in the group CI market, considering the relative lack of recent growth. But with the growth in demand of flexible benefits packages from employers and employees, insurers would be unwise to let their interest wane in the group CI sector until any new products can offer a serious alternative.
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