The critical illness market remains driven by definitions as 2015 sees insurers facing an ABI deadline and advisers with a need for 'complex' knowledge, writes Thomas Smith
The individual critical illness (CI) market has seen a lot of activity around definitions in recent years. This is particularly important, because the ABI’s Statement of Best Practice must be adopted by December 2015, although many insurers currently offer more conditions covered than the ABI requires.
The statement of best practice outlines definitions of conditions for use with policies, as well as defining terms such as partial payment. With more than 80 conditions covered by insurers, advisers who are financial specialists not medical specialists, need to know what is actually worthwhile in terms of coverage. Some conditions, such as breast cancer, are well known, but rarer conditions are unlikely to be known by advisers or the public.
At the same time, some of the conditions covered in those long lists are different forms of others. Notably, some insurers have offered cover for both dementia and Alzheimer’s Disease separately, when Alzheimer’s is a form of dementia.
Robert Morrison, chief underwriter at Aviva, said: “Over the past couple of years a great deal of focus has been placed on enhancing CI cover by adding additional payment conditions. For customers, this is great news, as they provide valuable protection where cover was not provided previously.”
However, Morrison warned that there is concern about the level of complexity with so many conditions covered in the market.
He said: “Aviva is pleased to see the conditions race slowing, suggesting that the industry is approaching saturation in terms of what is considered a critical illness. More focus is now on improving existing definitions to pay more claims. Definitions have to change over time to keep up with ongoing advances in medicine. This will continue to be the case.”
Peter Chadborn, director of Plan Money, said the market had seen: “Enhancing definitions, which is an ongoing progress you would expect to see anyway, there hasn’t that I can recall been anything in terms of product design, it’s just the definitions themselves.”
While services such as CIExpert have a valuable role to play in helping advisers compare CI policies, are insurers doing enough to help advisers?
Justin Harper, head of adviser marketing at LV=, said: “The feedback we’re getting from advisers is that because of the nature of change and the pace of change and the number of advances the various providers have made it’s increasingly difficult to stay fully in touch with the latest developments and what’s right for their clients, so they are turning increasingly to tools to help them.”
Fear of a complex market
Alan Lakey, director of CI Expert, said: “I know a number of advisers are scared to go into the CI market. They see it as too complex. What we should be looking for is our perception of value, and everyone’s got a different perception, but it doesn’t matter, as long as we consider that what we’re buying achieves the outcome we want at a price we can afford, that becomes value. That’s the adviser’s job. The public can see a list of premiums, they can work out cost, but they can’t work out the quality trade-off. That’s what we do; that’s what we should do.
“A number of advisers, having seen the way that the FCA is regulating investment products, which gets more onerous by the day, and are seeing that the mortgage market is quite buoyant have not unreasonably said to themselves: ‘Why would I want to get involved in something that’s almost certain to come back and bite me on the bum when I can do protection and mortgages and earn a decent living?’”
With the ABI deadline ahead of the CI industry might seem to have quite enough happening for the future.
Dougy Grant, protection director at Aegon, said: “The ABI Statement of Best Practice has been central to driving most changes in the CI market with improvements being made to definitions that future-proof the product for tomorrow’s customers and continually raise industry standards.
“However, as a result of this continual development, CI products have become more complex, I would expect the market might start to look into more simple CI solutions, such as cancer cover, tailored to meet a specific customer need, as opposed to a product that covers an array of additional and, in some cases, unknown conditions.”
Richard Sadler, head of retail protection proposition development at Zurich, said: “I’m sure we’ll see providers continue to enhance the definitions and add more definitions and that arms race will continue, we will see more providers adding partial payments and going down that route.
“As to whether there’s going to be anything more radical, My personal view is that at some point there will be, whether that’s in the next year I don’t know. I can see at some point in the next few years we’ll see maybe more radical steps to perhaps create some kind of combined CI and income protection product.”
Dean Mason, practice principal of Masons Financial Planning believes the market should be growing at a greater rate but mortgage brokers, who traditionally sold the product, had been fire fighting with their mortgage business.
He said: “There is some public confusion over the policy itself, what it actually does, what the benefits of it are and probably most importantly, the only time they’re likely to hear about CI policies are on a consumer programme, where one of the 1%, 2% 3% of policies sold hasn’t paid up.”
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