The ABI has said it intends to end Total and Permanent Disability (TPD) clauses, introducing set definitions. Will this add even further complication to Critical Illness (CI) policies?
Alan Lakey, Highclere Financial Services
It is said that simplicity sells, yet industry pundits realise that comprehensive cover is superior. This paradox has existed since the early 1990s when the mainstream players entered the market, each offering a variation that allowed them to claim some unique point or other.
Adding extra conditions does not in itself cause confusion but the worthlessness of some is guaranteed to mislead.
TPD has long been a problem, although this has been due in part to the variety of claim definitions, particularly the task-based versions applied to occupational risks 3 and 4. However, the prototype replacement definitions, as suggested by the ABI, are not as wide-ranging as I would like to see and it is likely that many genuine claims will continue to slip through the net. If this happens then the industry will have taken a backward step.
Additionally the ABI allows insurers to place age restrictions on definitions such as Alzheimer’s and Parkinson’s, arguably a consistent approach here would assist advisers and serve to deflect criticism from some, such as myself, that the definitions are cynically applied.
One feature of greater standardisation is the potential for CI to be viewed as a commodity, like term assurance, where price generates a greater impact than the efficacy of the product. This must be resisted as a price war is likely to lead to an erosion of comprehensive products.
Andy Couchman, the Protection Review
In its relatively short life – it didn’t exist a generation ago – CI has gone from being seen as a gimmick (until the 1990s), to a sales phenomenon (until 2004) but is now at risk of being too clever for its own good.
The ABI’s intention is commendable; CI definitions need to be clear so consumers
can understand exactly what is and isn’t covered. But the new model definition for TPD runs the risk that in seeking clarity, the ABI will instead swamp consumers with technical information that borders on overload.
Take the new definition itself. Instead of a few sentences, it now runs to four A4 pages and I defy anyone outside the medical profession to explain exactly what all the jargon means.
Ironically, many consumers will simply see this exercise as insurers trying to hide behind yet more smallprint, even if it isn’t.
Is there a better alternative? I believe so; what is needed is some form of externally validated kitemark representing a guarantee that what insurers are trying to achieve is fair and reasonable.
That endorsement could come from one of the Royal colleges or even from a consumer magazine such as Which?.
Ideally, GPs and insurers would even use the same terminology – perhaps a ‘Grade 1 permanent and total disability’ for a valid claim or a Grade 2 for other forms of disability.
Until we take such an approach, I fear that CI will continue to sell at less than half the level of a few years ago – and that tells its own story.
Kevin Carr, PruProtect
We welcome the ABI’s initiative to improve clarity in this area. Although the words ‘total and permanent’ are relatively clear, the interpretation causes confusion in practice. While less than 5% of critical illness claims fall under TPD more than half of these are declined, which is clearly not a desirable outcome.
The ABI has looked at around 1,200 past TPD claims to find the most common causes of claim under this heading to create a list of new individual conditions that could be covered by CI plans of the future. We could therefore see the current industry list of 23 conditions, where there is a minimum standard ABI definition, rise to 33 next year.
These new definitions should improve clarity as they are clearer and more objective than the current format of TPD.
However, a number of alternative options could be considered, such as a payments linked to the severity of the condition, income payments during a period when permanency is established or just scrapping TPD altogether.
We believe that many of the claims that have been declined may have deserved a payment – albeit perhaps not the whole amount and the severity based approach could work well.
The debate, which is ongoing, is whether or not more or less claims will be declined as a result of these changes – and as such whether or not a new version of TPD should remain as well as the new definitions. The question is not one of complicating the proposition but instead ensuring a better outcome for all stakeholders.
Stephen Crosbie, AEGON
Industry wide, total and permanent disability accounts for 3% of claims but 55% of these are declined, according to ABI figures. This is not an ideal situation for customers, advisers or insurers.
It is of no consolation to a customer who is affected by illness that the declinature is in line with the definition when their expectation has not been met.
We recognise that the main issue with total and permanent disability is that it’s a subjective definition, based on an individual’s permanent inability to perform either their own or any other occupation.
This subjectivity leads to a high percentage of claims being declined, lengthy assessments, difficulty for advisers in selling it and poor consumer confidence.
The ABI are therefore seeking to bring more clarity and certainty to the product by replacing total and permanent disability with much more objective definitions, and this is something we fully support.
The detail of what will replace total and permanent disability is currently under consultation and we are in the process of carrying out our own research. We believe that an alternative definition, or group of definitions, should be entirely objective but also ensure that the product provides the protection that customers need by maintaining the volume of CI claims paid.
Whilst it could be argued that adding more definitions will make the product more complex, the objective nature of these definitions will ultimately make it easier for advisers and customers to understand what is and is not covered.
