Critical Illness: Smaller initial payment could mean a better deal on premiums
A new type of mortgage-linked critical illness (CI) policy could be designed to tackle the growing number of CI claims, by offering a smaller payout in the early stages of treatment, linked to the severity of an individual's illness.
Speaking at a marketing conference in London, Azim Dinani, head of pricing at the GE Frankona Re UK Life and Health, suggested the growing pressures on CI pricing and supply, as well as advances in medical science and knowledge, could encourage companies to develop a new form of CI policy.
The new plan would pay a fraction of the lump sum at the first stage of a claim and offer additional payments linked to a client's mortgage if the individual was still unable to return to work a few months later.
Rather than pay a substantial lump sum - dependant on the policy terms - the reinsurer proposed changing the form of CI policies to look more like a cross-breed of CI and income protection plans, offering regular benefits for long-term disability.
Dinani proposed clients could set flexible terms on a policy which would provide 25% of the total lump sum payout, to help the individual recover from any condition defined on their policy. If individuals were still ill after three months, Dinani suggested the policy could pay any mortgage interest.
If the client was still disabled after two years, a CI policy could effectively pay off the individual's mortgage, said Dinani, as they would be unlikely to return to work.
"Many policies are sold on the back of the need for mortgage protection, so my proposal is to design a product which pays 25% of the lump sum to allow the individual to take time off work for rehabilitation and recuperation, followed by additional payments if needed.
"A lot would depend on how the product is designed but if we are not paying out the full lump sum on any event, we can begin to offer consumers a better deal on their premiums," he said.
Changes may also need to be made to CI policies to accommodate the likelihood of higher and much earlier claims in bowel, breast, cervical and prostate cancer. According to Dinani, a Government pilot study is already under way to assess whether bowel cancer can be detected at an earlier stage.
"If more screening is done, we have more people eligible for claims," said Dinani.
Julie Henderson is editor of IFAonline
