A defining period?
At the latest COVER Think Tank, guests debated the forthcoming critical illness definitions review. Johanna Gornitzki reports
Angela Faherty: Why do critical illness definitions have to change?
Nick Kirwan: The first review was published in 1999 and is supposed to be reviewed every three years, so it is due. Also, over the last two to three years, critical illness definitions have been discussed quite significantly. There have been concerns about the trends in medical science and where claims for certain illnesses are heading. And that has become part of the debate.
John Joseph: Medical advances are just too fast for any actuary to control and therefore definitions have to change. I haven’t got a problem with that. However, I would have a problem with reviewable definition policies, but that is a different issue.
Angela Faherty: Are reviewable definitions being looked at?
Nick Kirwan: One of the issues with reviewable definitions is that, in some ways, it must surely take away some of the reasons for taking out cover in the first place. Why would you buy an insurance policy if you are not sure what you are insuring against? One thing customers will want to be sure about when taking out a policy is how much they will get and when they will get it. And if you can’t give customers some simple answers to this, you start getting bigproblems. I think the consumer suspicion is thatjust before they are about toclaim, the insurance companychanges the definitions sothey are not covered.
Peter Chadborn: Yes, it is theconsumer confidence thatworries me. The morevariable the policies are, themore claims are going to beseen as a luxury. The wholeattraction and the wholemotivation for taking out thatkind of cover in the first placewill then be watered down.
Phil Cleverley: I think theother reason for change is todo with the clarity of thedefinitions. We are trying toimprove them and make themeasy for consumers tounderstand.
Greg Walsh: Don’t peoplehave a choice at the momentwhen it comes to reviewabledefinitions anyway? When itcomes to five or 10 years,effectively you review thedefinitions as they are now.
Nick Kirwan: Yes, if peopleare buying a reviewable policythey are effectively gettingreviewable definitions. But itis reviewable, not renewable.
Dave Grimshaw: I think thatis disputable.
John Joseph: As far as I amconcerned, reviewablepolicies means that theexisting level of cover isrenewed and the premium isreviewable. If anybody tried toalter the policy at renewal, Ithink I would be slightlysurprised.
Dave Grimshaw: I think itdepends. In policy terms Ithink very minor changes inthe reviewable definitionswould not scrape the cover.
John Joseph: Nick, the termfuture proofing has been usedin this review. This is a phrasethat I haven’t yet got my teethinto.
Nick Kirwan: Essentially, whatwe are trying to do is look at anumber of different types ofadvances in medical science,such as diagnostics,screening, and NHS capacity.We then test them againstfuture definitions and look atthe ones that are most at riskfrom that type of advance, forexample, some of the heartsurgery definitions.
Angela Faherty: How wouldthis work in practice?
Nick Kirwan: If we can identifythe key areas of risk then wecan arrange for the definitionsto be proofed against that andmake sure that what is coveredtoday can continue to becovered tomorrow and thatwe are not covering thingsthat will become trivial in thefuture. It is about trying toprotect the wording againsttrends in the future.
Phil Cleverley: I think futureproofing, from your point ofview, John, is trying to createdefinitions that are as longlasting as we can possiblymake them. What we aretrying to do is bring aboutconsistency and confidence inthe product.
Greg Walsh: What we arelooking at here is contractterms. At any time with acontract, you are always tryingto predict what is going tohappen in the future. It’s aboutlooking at the medicalconditions and predicting thecourse as far as possible.Where will we be heading inthe future? Where will we endup?
Craig Thornton: I think there isanother element to this, whichis the concept of trying tomaintain some measure ofseriousness. To make sure thatwhen you use the wordcritical, it genuinely is critical.There is a chance that medicaladvances in the future couldlead to people putting claimsin because they satisfy thedefinition, but it doesn’t havea material impact on theirlives. This doesn’t seem toquite fulfil the concept of theapplication or what theproduct was designed for, sothere is an element of ensuringthat the contract is effectivelycurrent in terms ofidentification.
Richard Walsh: Prostate canceris a good example of that andsome companies are continuingto offer prostate cancercover for less serious cases.
Nick Kirwan: The strokedefinition is also a goodexample. You can imagine ifyou have a future scan sosensible it could detect somemicroscopic silent stroke,which would have no effect onlife, and there are nosymptoms, should that becovered? So by includingclinical symptoms in thedefinition, what we are sayingis that a stroke would be whatpeople think of a stroke. Soanyone covered yesterday willstill be covered tomorrowunder that definition but itprevents an advancedscanning technique frompicking up micro-events thatwere never intended to bepicked up because there areno symptoms and they won’tneed any treatment.
John Joseph: Really? If itshows up that you have a predepositionto a minor stroke, I think you are going to be toldby your doctor to change yourlifestyle completely or you aregoing to have a major one.
Nick Kirwan: That may be anarea where the person may beon statins. But again, I am notsure we would necessarily callthat a critical illness.
Angela Faherty: So is thestroke definition one that islikely to change? What aboutthe other definitions? Whathas proved problematic orraised questions?
Nick Kirwan:We are notlooking at what is problematictoday, we are looking at whatmay happen tomorrow. Howmuch they change will dependon the consultation and whatpeople say, but certainly all thedefinitions will be up forreview and I think the workingparty will be recommendingchanges to all of them.
Greg Walsh: The workingparty is very much looking atconsumers’ interests and whatthey want.
Angela Faherty: Is that interms of clarity?
Greg Walsh: It depends. Wehave to try to keep some sortof conformity so that peoplecan compare the product.
Peter Chadborn: I don’t thinkthe average consumer understandswhat the definitionsare.
Angela Faherty: Isn’t that theadviser’s job?
Peter Chadborn: It is, but themore the definitions changethe more difficult it will be.
John Joseph: An advisertalking to his client about thedefinitions is merely a parrotbecause 99% of advisershave not got any better ideaof what the definitions meanthan the client. It is whenthere is a potential claim thatthe adviser and client find outif the illness is covered. Sothere is no point in trying toteach the client what thedefinitions mean becausethey are just words until theincident occurs.
Nick Kirwan: If the definitionswere more stable andwith fewer changes, do youthink that may, over time,improve advisers’ understanding?Or do you thinkthis is an area some advisersare never going to get?
Peter Chadborn: It think itwill help in some ways, butequally there are lots ofadvisers that won’t go thatfar.
John Joseph: But you can’tdo that at the beginningbecause there are millions ofillnesses that come under thegeneric name that aredefinitely not covered. So youhave to say that cancer iscovered, however there is alimit on the type of cancercovered and if you get acancer, I will tell you whetheror not your cancer is covered.But I am not going to gothrough a serious processsaying all these are definitelyin today and all those aredefinitely out. You cannotexpect us to become medicalspecialists overnight, becauseif we could have done that,then we wouldn’t havebecome financial advisers.
Dave Grimshaw: The keypoints are that currentdefinitions cover mostcancers, but not everything.
Nick Kirwan: When settingthe definitions, we do talk topeople in the medicalprofession about where tocreate a divide. We are notjust coming up with definitionsin a vacuum. Consumersspend a certain amount oftime researching a productand will never spend longerthan that. This is why weneed standard definitions.
Richard Walsh: Yes, howeverit gets a bit more complicatedwhen companies do offercover that is better or widerthan the standard definitions.
John Joseph: But that informationis available to IFAsand they can look at thedefinitions from all the insurance companies thathave critical illness policies.
Nick Kirwan: The consumer isgoing to assume they are thesame.
Richard Walsh: Nick has veryadequately explained futureproofing. But what if wecan’t predict? How much canwe predict? Are there anysolutions? We need to beconfident we will meet thecriteria set out by the OFT.
Angela Faherty: What couldgo wrong?
Nick Kirwan: When settingthe definition standards thereis a risk, but I am confident.Ultimately it is up to theindividual companies todecide whether or not theywant to offer the product. Idon’t think the ABI workingparty can tell people everything,individual companieshave to make their owndecisions.
Angela Faherty: If we take alook at the product in itscurrent form, how does it failor succeed in doing the job itwas designed to do?
Nick Kirwan: I think one ofthe areas we have seencriticism in is that it doesn’tcover all illnesses, whichraises the question aboutwhether the name of theproduct is right. Maybe weshould ask that question inour consultation?
Angela Faherty: But surelythe name speaks for itself?
Nick Kirwan: Well, it shouldbe made clear that it is a longlist of specified critical illnessesor listed critical illnesses. Ifyou just use the name criticalillness cover, the impression isthat if you get a critical illnessyou get the money.
Angela Faherty: But would ithelp to call it ‘specifiedcritical illness?’
John Joseph: No. I would saythat all the clients I have seenover the past 40 years haveunderstood that there is a listof critical illnesses. It is easilyexplained to clients that thereis a list and provided underthat list there are elements ofcover that will be in place orwon’t be in place dependingon the product.
Peter Chadborn: But thatexplanation could beimproved upon.
John Joseph: Yes, I think itcould be written more clearlythan it is but that is not reallywhere the problems arecoming from. Most peopleeither have a heart attack ornot. The problem is totalpermanent disabilities (TPD).
Angela Faherty: And whatneeds to be done there?
John Joseph: Some 50% oftotal permanent disabilityclaims are declined. Andnothing gets the back upmore from the client and theIFA than when a claim isdeclined because it isn’t totalor it hasn’t been proven to bepermanent. There has to be aproof or a line drawn now to define the words total andpermanent.
Nick Kirwan: But we havedone that. I would like to seea different approach like usworking together as anindustry. We should look atall the claims that we havehad over the past five years,look at all the ones that havebeen successful and categorisethem into groups, andthen produce individualillness definitions for those.So we will have four or fivenew illness definitions insteadand hopefully, fewerdisputes.
John Joseph: Will there thenbe a fifth one called TPD?
Greg Walsh: Before you canstart looking at productdesign, one really has to lookat consumer interest.
Nick Kirwan: But given thedeclined rate, I think we havequite a big space to fill.
Richard Walsh: I agree withthat. We ought to be lookingat this and we will, but Idoubt we will be able to do itin the current consultation.There are actually two issueshere. One issue is people’sexpectations and understandingabout the terms andwhether it meets their needs.I think the other issue is whypeople buy the product in thefirst place. Part of the TPDproblem would disappear ifthe people buying theproduct to cover themselvesfor being too ill to work wereaware of, and could understand,the income protectionproposition too.
Phil Cleverley: There was adocument produced by AIFAon TPD, which is a guide towhat is total and what ispermanent. One of the thingsthat it shouldn’t be sold as isa sweep up benefit.
John Joseph: That is how itwas sold to me 12 years ago.
Phil Cleverley: But it is notreally a sweep up benefit andthat gives people the wrongimpression. They think canceris not covered but there is asweep up benefit that isgoing to pay out. This is notthe case. More emphasisshould be put on the purposeof TPD.
Nick Kirwan: So why notdefine this?
Craig Thornton: Looking atwhat the product has donewell and badly, we shouldlook at some of the positives.We have done what theindustry is there to do, so it isnot all bad news, and weshouldn’t really exaggeratethe negatives. There are also a huge number of claims thatare paid. That is important toemphasise.
Angela Faherty: How havetrends in the market dictatedchanges?
Nick Kirwan: One of theissues that we have looked atis that, until now, the consumerhas always been right.But could these thingschange with future proofingand could it bring less scopefor consumers to say ‘I didn’tunderstand that’?
Angela Faherty: Could youelaborate?
Nick Kirwan: For example, inthe case of a benign braintumour, there is a requirementunder the definition toshow signs of neurologicalreplica. What we aim for isfor people to show that theyhave some sort of consequencesand lasting effects ontheir lifestyle and then theycan get the money. But is thatclear enough in the heading?Or should we say benignbrain tumour with permanentsomething else? I don’t havethe answers.
Dave Grimshaw: I think thisis a big issue. I can’t helpthinking that the bestsolution might be scrappingthe heading altogether.Ultimately, if we add thoseextra words to the heading itis still not fully descriptive ofthe whole definition, so reallyif people want to knowexactly what is covered theyneed to read the fulldefinition instead of justmaking the heading a bitlonger.
Nick Kirwan: I agree withthat, but again I think thatthe devil is in the detailbecause it is about makinglight work. Quite clearly, thedefinitions will never exactlymatch the heading.
Greg Walsh: There is also amedical flaw here. Look atthe heart attack definition,the medical profession hasn’teven agreed on what a heartattack is.
John Joseph: I have a majorproblem with this. Let’s goback to this man called DrGleeson. Out of nowhere hedecided that if I was going toget prostate cancer I had topass the tests and get 80%.How can an IFA know how todescribe the Gleeson testbecause that is what you areasking us to do?
Nick Kirwan: But I think thiscomes back to what wediscussed before. It is verydifficult for consumers tounderstand all the details of these medical definitionsbecause in theory, a customercould look up on the internetand check things that areavailable, but that is not thenormal length that a customerwould go.
Phil Cleverley: With regard tothe headings, it was actuallydiscussed before the laststatement of best practicewhether the headings shouldbe expanded.
Nick Kirwan: This has beenongoing for at least six years.
Dave Grimshaw: We havealways said that the heading isonly a guide.
Angela Faherty: Looking tothe future, what will beregarded as a successfuloutcome to this review?
Phil Cleverley: Continuedconfidence in the sales of theproduct and continuedprotection for consumers.
Peter Chadborn: A sense offairness for the consumer andthe adviser.
Nick Kirwan: I certainly hopewe will see a consultation withconsensus on the wayforward, so that we end upwith a consensus that what weare doing is the right thing.
Richard Walsh: I agree aboutthe consumer confidence. Ithink it is also important for usto feed that confidence to theregulator because a successfulreview would be that criticalillness products are seen aspart of the protection family,because general insurancenow has become full-blownregulated in the same sense asinvestment products.
John Joseph: I want to see theindustry take action againstthe production companiesmisleading the public bybroadcasting biased anduntrue reports of claims,because it cannot do thisindustry any good when all ofour companies are tarred byone of these programmes. Weneed to work together.
