Many years ago, when critical illness (CI) insurance first appeared, it only covered a number of con...
Many years ago, when critical illness (CI) insurance first appeared, it only covered a number of conditions: cancer, heart attack, stroke and a few others. Insurers then added in a safety net to cover other very serious conditions called total permanent disability benefit (TPD). Of course, they could have sold income protection (IP) or payment protection insurance (PPI) instead. And how we all wish they had.
TPD was always going to be difficult to claim because of the fact that more and more "dread" diseases were being covered by CI.
Then there is the complexity of disability definitions within TPD benefit. Typically, payment is linked to inability to perform own, suitable or any occupation or, alternatively, to massively complex definitions of activities of daily living or working, all of which vary according to insurer and when the product was bought.
Right now, the result of this is that around 60% of TPD claims are rejected. Of that 60%, about 70% are due to not meeting the entitlement definitions and 30% to non-disclosure. We thought CI decline rates of 20% were bad enough, but this is in another league.
I know many insurers are looking at the Association of British Insurers to broker a solution with the Office of Fair Trading (OFT) and the Financial Services Authority (who is on record as criticising TPD), but, in the meantime, it is still being sold even though everyone in the know is aware it is a bust product.
It is time for some innovators to act now by stopping selling TPD and offering IP or PPI instead. Alternatively, why not go the whole hog and take account of the OFT inquiry into PPI to produce a new mass market product that is underwritten at point of application, is simple to understand, covers longer-term disability or unemployment and is affordable because it covers a limited period. Hardly rocket science.
Finally, there is another strange feature of TPD that consumers are never warned about. That is the impact on non-disclosure of something that affects TPD on the ability to claim on CI itself. This is Watchdog territory - a bad back negates a claim for cancer. Companies could solve this by making TPD a separate contract. What is more, they ought to be able to do this without cost - unless, of course, they have built money saved from not paying out in such unjustifiable circumstances into their costings. Now that really would be indefensible.
So good luck for industry solutions, but come on chaps - can't you see the elephant in your living room?
Richard Walsh is managing director of SPPR Consulting
