Providers looking to enhance CI products must consider the effect on systems and pricing, and whether further underwriting is required. Julie Hopkins explores how cover can be retrospectively amended
When insurers reprice or relaunch critical illness (CI) products they will often add new conditions. Reasons for doing this could include offering additional benefits to policyholders, remaining competitive and matching the Association of British Insurers (ABI) standard definitions.
With the advent of ABI+ definitions, insurers may also take the opportunity to move to these as they 'enhance' standard ABI definitions by omitting certain clauses or exclusions.
The question of whether it is possible to add retrospective cover to existing CI policies is an interesting one. It is worth discussing whether the industry can or should add new conditions or enhance existing definitions, including moving to ABI+ ones. This would need to be considered alongside marketing messages, looking at who benefits and how, different options for structuring retrospection and practical next steps.
There are several main factors to consider. Companies looking to enhance their CI products may choose to enhance existing definitions, include additional conditions, or both, and offering the same enhancement to all policyholders within easily identifiable tranches of business minimises any system implications. Providers may decide to limit retrospective enhancements to conditions or definitions that need not affect premiums, rather than those that add cost. They might equally choose to absorb any cost increase.
Enhanced cover
If providers issue a new product with enhanced cover, they could offer it to their existing policyholders without the need for underwriting. This would be preferable to cancelling and reissuing their policy. If the premium has increased, they could offer policyholders the option of paying for the enhanced plan or remaining with their existing policy.
In deciding whether to add any conditions, an insurer will need to review the original policy's scope of cover. New conditions will not typically be added if there is a risk of related symptoms not being taken into account at underwriting.
This brings us onto underwriting. Underwriting is a key consideration. Insurers have to be sure that the appropriate risk factors for any condition they intend adding were elicited at underwriting stage - and that they would have been taken into account when the underwriting decision was made. Restricting any upgrade process to business written on a full application process, which conforms with the ABI guidance on clarity, should provide acceptable protection.
Additional conditions
The type of conditions added and their exact definitions are also very important - not only from the point of view of pricing and underwriting, but in terms of the message given. The likely cost impact of any conditions added will depend on what other conditions are currently covered and any overlap with total and permanent disability (TPD).
Here is the list of conditions that Hannover Life Re (UK) has agreed with Skandia Life can be retrospectively added:
- Aplastic anaemia - with permanent bone marrow failure - a definite diagnosis of aplastic anaemia by a consultant haematologist. There must be permanent bone marrow failure with anaemia, neutropenia and thrombocytopenia. At least one of the following treatments must be required: blood transfusion; bone-marrow transplant; immunosuppressive agents; marrow stimulating agents.
- Creutzfeldt-jakob disease (CJD) - given the high level of public interest, with the right definition, CJD is suitable for consideration as an added condition.
- Coma to an ABI+ version - changing the definition of coma to remove the requirement for 96 hours on life support is a retrospective enhancement that could be offered from inception.
- Heart valve replacement or repair to an ABI+ version - changing the definition to remove the requirement for median sternotomy is a retrospective enhancement that can be considered and, with the right definition, can be offered from inception.
- Liver failure - of advanced stage - chronic liver disease, due to cirrhosis and resulting in all of the following: permanent jaundice; ascites; encephalopathy. Liver disease secondary to alcohol or drug misuse is excluded from this definition.
Each proposed retrospective condition raises different issues. Any addition must to be considered in light of existing cover, pricing, and underwriting considerations.
Hannover Life Re is not only adding cover retrospectively for existing CI customers but has already agreed several enhancement programmes. The approach is not to include any exclusion for pre-existing conditions but instead stipulate the date of the enhancement and cover new incidence occurring after that date.
This means that claims will be considered where symptoms were present before but will restrict payment where a diagnosis was made or surgery carried out after that date. This approach is equally valid whether insurers are enhancing an existing definition or adding extra conditions.
The objective is to support insurers in creating and marketing innovative products with a compelling value proposition. Intelligently conceived enhanced definitions and retrospective cover for carefully selected conditions can significantly enhance the perceived value of CI products without adversely affecting profitability or creating an additional administrative burden.
- Julie Hopkins is head of underwriting and claims strategy, Hannover Life Re (UK).
KEY QUESTIONS AND ANSWERS
Q: Could this be seen as a marketing exercise in that the conditions added would have limited claims?
A: Even a single claim paid or paid earlier is worth the effort.
Q: What about the cost?
A: This will depend on the enhancements insurers make, but pricing does need careful consideration, especially if they are hoping to add retrospective cover without implication or with minimal cost.
Q: Could insurers face paying immediate claims that would have previously been declined?
A: Not if they make the effective date of any enhancement clear.
Q: What about changes to the Association of British Insurers Critical Illness Statement of Best Practice?
A: The ABI definitions are due to be reviewed this year. There is, of course, a risk that definitions or conditions added or upgraded now will be amended again or that others will be altered.
Q: If this happens could the industry come under pressure to repeat the process itself and change again?
A: This issue is one the industry will have to consider whether or not it has already offered any enhancements. It may be better to enhance benefits than have policies rebroked.
SKANDIA'S EXPERIENCE
Skandia Life has enjoyed a working relationship with Hannover Life for many years, building a critical illness (CI) product and developing it. Skandia is embarking on a programme of retrospective enhancements to recently issued policies by adding three definitions and pushing two others beyond the Association of British Insurers (ABI) standard. The approach has been to enhance existing policies while taking the decision not to increase premiums.
The most recent 'series' of CI policies that started in May 2007 will be upgraded, ensuring that any policies in the pipeline are covered as well as a fair number that have been in force for well over a year, reducing as far as possible the feeling of having missed out on developments."
There are good reasons for considering carefully whether or not premiums should rise to reflect alterations to cover. Even when a premium increase does apply, policyholders will normally appreciate being offered an opportunity to upgrade.
Enhancing cover underlines the importance that insurers attach to their existing policyholders. It shows they are still thinking about their needs and wellbeing beyond the initial sale. Even though the risk of a retrospective condition occurring may be small, taking specific account of it still provides additional peace of mind for their customer.
If a condition currently overlaps with TPD, it will possibly be paid at an earlier date than under current practice with the 'total and permanent' definition.
Adding conditions retrospectively removes any perceived disadvantage in purchasing cover sooner rather than later. It takes away the fear that 'if only I had bought my policy later, I would have been covered'.
There are a number of potential benefits to offering enhanced or retrospective cover: it sends a positive message to customers, underlining the insurers continued consideration for their needs and wellbeing; the enhancement may simply offer greater clarity and peace of mind to the insured, but it can still provide a good marketing opportunity; if the condition added overlaps with TPD, it may pay out at an earlier, fairer stage than TPD; it removes the disadvantage to the customer of the timing of their purchase; and it could provide an opportunity for up-selling.
- Ian Brown is head of protection marketing at Skandia Life.
