With guarantees on critical illness rates uncertain for tomorrow, Nick Kirwan advises what intermediaries should be telling their clients today
In recent months, there have been rumblings about whether guaranteed premiums for critical illness (CI) cover will survive and, if so, at what cost. The rumblings started when Swiss Re announced, due to advancing medical science, it would no longer be able to offer long-term guaranteed reassurance rates for CI which underpin guaranteed premiums in CI cover. Since Swiss Re announced its decision, the rumblings have been growing ever louder and the question on everyone's lips is whether the remaining reinsurers will be able to absorb Swiss Re's share of the market. In the current circumstances, you would be brave to bet against significant changes to CI cover in the months ahead.
In limbo
As the future unfolds, a clearer picture will emerge of the CI market and, in particular, whether guarantees will still be available and at what price. In the meantime, intermediaries are faced with advising clients about their protection needs. The good news is that policies taken out now and existing policies with guaranteed rates will not be affected. However, given the uncertainty ahead, what factors should IFAs consider when deciding which product to recommend to their clients now?
One thing seems certain ' policy conditions are likely to tighten and premiums could rise significantly, especially for guarantees and longer-term policies. The effect this will have on clients who have bought policies in the recent past is they will want to keep their policy for the long term.
It will no longer be possible for clients to change their policy for a new one if their circumstances have changed and find their premiums are lower and their cover is more generous ' despite the client being older and possibly in less good health. These circumstances are rapidly coming to an end and people will want to keep hold of their policies for the long term ' the last thing they will want to do is lose the benefits of a policy bought now. Protection plans taken out now will be for keeping and advisers should take a long view of their clients' potential needs and circumstances.
The long view
Perhaps the most important aspect is anticipating how a client's future needs might change and ensuring the policy is flexible enough to do tomorrow's job as well as today's. Over a 25-year horizon, almost anything might happen to the client.
If your client moves house, changes a relationship or their job, or starts a family, they will need their policy to change with them. If the policy is flexible, in the future they will not need to cash it in and lose the valuable benefits they gained by taking out the policy years earlier.
One thing is absolutely certain. None of the current speculation will prevent a single person from getting cancer, or having a heart attack. Even if the premiums do go up and guaranteed premiums disappear in the months ahead, the need for CI cover will remain as strong as ever. If you have clients who are considering taking out protection, advise them to do it soon and ensure you cover them for the long term with a flexible policy that will meet their future needs. In years to come, your clients are bound to be pleased that you did.
Nick Kirwan is head of marketing and product development at Scottish Provident
Checklist
The five-point checklist below shows how a person's circumstances might change and what they should expect their critical illness policy to be able to do:
1. Your client changes job or career
• Do ˜own occupation total permanent disability' and ˜waiver' automatically transfer to the new job?
• Does the policy require the insurer to be notified?
2. Your client starts a new relationship
• Can life cover be added to the policy?
• Can another person be added to the policy?
• Are stepchildren covered by the policy?
• Can a person from an earlier relationship be taken off the policy?
3. Your client starts a family
• Will the children be covered by the policy?
• Is there a limit on the number of children covered?
4. Your client moves house
• Will the client be able to top up cover for a larger mortgage?
• Will the client be able to change the term to suit the new loan?
• Will the policy allow different periods of cover for different benefits or amounts?
5. Your client's health gets worse
• Does the policy offer guaranteed insurability options?
• Will the policy pay out ' have you recommended the very best cover?
