With a large number of advisers not fully understanding the new ABI amendments more must be done to highlight the forthcoming changes. Samantha Downes reports
Next year's critical illness (CI) shake-up has already resulted in a war of words between providers and the Association of British Insurers (ABI). But the battle is not over the wording, implementation or even the date when the ABI's Statement of Best Practice for CI comes into force; it concerns who should be responsible for letting advisers know about it.
With five months to go before the statement comes into effect on 1 April 2007, many advisers remain unaware of exactly what the changes involve.
The results of a survey carried out by the Exchange on behalf of Royal Liver last summer revealed that 81% of IFAs who sell CI policies on a regular basis are oblivious to the ABI's updated CI statement.
Another 87.5% of the 500 advisers who took part in the survey also admitted that they did not understand many of the proposed amendments, including major changes such as future-proofing.
"The survey was carried out after we found an alarming number of advisers knew nothing about the CI changes," says Andy Milburn, Royal Liver's IFA marketing manager.
"We were finding that while some senior people within adviser companies knew a bit about the changes, the guys on the ground knew nothing or very little," he says.
Transparency
The ABI's statement follows years of consultation effectively forced on it by the Office of Fair Trading (OFT) in 2001. The watchdog has long demanded that CI policies, which pay out over £500m a year, are made more transparent for consumers.
Julie Smith, research manager at AWD Chase de Vere, explains: "The new statement aims to improve the public's understanding of CI by providing a clearer explanation of conditions either covered or excluded. The descriptions will be written in a common format and will use generic terminology."
What this means is all insurers will effectively be singing from the same hymn sheet in terms of their definitions of what is a critical illness and therefore covered by their policy. It will make it easier for advisers to compare products and by doing so get their clients the best possible deal.
Future-proofing
The statement requires that all CI definitions are what is known as 'future-proofed'.
Smith says: "This means that they take into consideration medical developments in the future to avoid the need for them to be changed at a later date." She adds that the ABI model definitions have been extended by three to 23.
In its statement, the ABI insists that insurers adopt the changes as soon as is practical but no later than the end of April 2007.
The statement, which will update the 2004 version, insists on a generic description of CI cover to improve consumer understanding.
It says: "The use of more descriptive headings for critical illnesses in marketing material to improve clarity about what is, and is not, covered." It also says it has removed the categories of 'core' and 'additional' conditions as these are no longer relevant and can cause confusion.
"The generic terminology should be used in all cases where the appropriate generic terms apply. This is to ensure insurers use common language to describe CI product features to help consumers compare different policies. Other terms to describe these features should not be used."
Insurers are also under an obligation to give product information to enquirers and potential customers via intermediaries at the earliest opportunity to allow them to "make meaningful product comparisons before purchase", it says.
The statement adds that while insurers are free to decide on the conditions and exclusions applicable to their products, where a model wording is available, as included in the ABI statement, it should be used.
Richard Walsh, the ABI's head of health and protection insurance, says the statement of practice means customers will have a much clearer explanation of what their product does and does not cover when they buy it and if they need to make a claim. He adds: "This should also lead to fewer declined claims."
With such wholesome consumer-friendly wording industry experts are now asking why so few advisers are aware of the ABI's statement.
It does not help, says Smith that only two providers have adopted the ABI's new wording, Royal Liver's new guaranteed CI plan and Prudential's new flexible protection plan.
She admits that life offices are product-based, and when they have a new product to sell, they tend to market the product on the back of those changes, rather than marketing the changes simply because they are being introduced.
Milburn and Smith are therefore both adamant that it is the ABI's fault advisers remain so ignorant.
Smith says: "Although there may have been a fair amount of comment in the press regarding the forthcoming changes to CI definitions, full information has not been made readily available."
She adds: "Although you can obtain the new Statement of Best Practice by visiting the ABI's website, there hasn't really been much else to go on."
Milburn goes further, he claims the ABI has been extremely arrogant in expecting the industry to simply just know what is going on.
"They can't just rely on the media and on product providers. They have to do more, but their attitude is that they have done enough."
"Well I don't think so," adds Milburn. He argues that: "you only have to look at the lack of interested parties who were included on the CI review panel to see how short sighted the ABI was".
"Where were the consumer groups like Which?, and what advisers were included?" he says.
Milburn now admits it is up to providers to make sure advisers know what is going to hit them in the spring of 2007. "That's why we've decided to set up a sub-section on our website. And we are going around the UK running roadshows and workshops in a serious effort to get advisers up to speed," he says.
But the ABI is not the only organisation blamed for the lack of available information on the statement.
Smith says: "Aifa also hasn't promoted these changes to help the adviser community understand what needs to be done to adhere to these new rules by the deadline".
Aifa says it is now concerned over the CI overhaul. Tracey Mullins, Aifa's director of public affairs, says: "It is an issue advisers have now started to flag up as one of concern. As a trade body we try as hard as we can to get out as much information but I think in this instance we will probably be sending out more updates."
Other providers, such as Bupa, also claim to be doing their bit to let advisers know about the statement.
Steve Casey, product manager at Bupa Individual Protection, says all its broker consultants are currently embarking on a huge briefing project.
"In our briefings we're not bombarding them with detail but we are doing our best to let them know how the ABI changes will affect things." he says.
Casey agrees that the ABI could have done more. "They have tried to publicise it but I think it needs to be pushed more."
But Jonathan French, ABI spokesman, claims the trade body has done enough to make the CI statement known.
"We consulted widely with the adviser community and have spoken to Aifa but we can only do so much. We respond as best as we can. Remember our membership is a small group of extremely large offices."
French says the ABI felt CI changes have received a lot of support from the press. He adds: "Financial advisers should be well informed. If they are not they can use our website."
But should the ABI be entirely to blame? Roger Edwards, products director of Bright Grey, does not think so. He says: "To be fair, the ABI doesn't have an unlimited budget and it's not up to it to do the job of educating advisers. The whole industry has been involved with the CI review from the start."
"It's unlikely many providers will be implementing the changes until next year and that's when the real job of letting advisers know what it entails will begin," he adds.
Going forward, Jason Hurley, head of marketing at RGA Reinsurance, says advisers need to think very carefully before re-broking any CI policies. If they did, they could inadvertently leave themselves open to a mis-selling complaint.
"It will depend on the way the market will go but an adviser who decides to churn business, by switching someone on to a different policy after April 2007 may end up making that client under-insured."
He warns: "They need to be extremely careful as to what their clients are insured for because after the statement comes into force the amount of cover they get for certain conditions will change."
Milburn meanwhile is also worried that advisers may not be aware of the implications of future-proofing.
"The good thing about the ABI's changes is that CI is starting to keep up with medical science. For example, someone who needs a coronary angioplasty would have had a lengthy hospital stay a few years ago. Now it's keyhole surgery and the amount of cover needed will now reflect that."
Advisers may feel they have to sell new policies, but will not because the statement is not retrospective, explains Milburn. "But of course, only advisers familiar with the statement will know that. I think now it is up to providers to start the ball rolling and make as many advisers as aware of the changes as possible. Not enough has been done yet," he adds.
Samantha Downes is a freelance journalist
