A positive outlook

2003 has seen some of the biggest changes in the critical illness (CI) market since this cover was first introduced to the UK in the late 1980s. This year, we have seen premiums rise dramatically, a more restrictive cancer definition and a future for guaranteed premiums that seems far from certain. Yet, 2002 was the most successful year ever for CI cover ' with over one million new policies sold, according to Swiss Re. So where does that leave us for the future?

Despite rates having risen and the definitions may be a little more restrictive, it is not all bad news.

Lower premiums

First, today's premiums are still lower than they were when the first CI policies were sold in the UK. Admittedly, premiums have fallen significantly over the last few years, as product providers have become more competitive. But the early premiums had to use estimated claims experience in their calculations. Today, we have the benefit of 10 years' claims history to take into account ' and this experience has shown a higher number of claims and at an earlier rate than first estimated. This claims experience, coupled with significant advances in medical diagnostic techniques such as the PSA test for prostate cancer are two reasons why new business premiums have increased.

Second, the cover now available is considerably wider and more flexible than in those early days ' when the first policies covered only the core conditions such as cancer, heart attack, stroke, kidney failure and total permanent disability. Today, advisers have a much wider choice to offer their clients. From very basic insurance, covering just those core conditions with limited options, to 'comprehensive' cover with over 30 named conditions and the flexibility to cope with clients' future lifestyle changes. There is something to meet every client's need.

And new benefits have been added to CI cover over the years ' as it has evolved. The earliest plans did not include children's cover, but it is now a standard feature on many plans. More recently, life cover buyback and now CI cover buyback following a claim is available. And in addition, some CI plans now include help lines or claims services to provide practical support at the time of need.

And the product is still evolving. What started as a unit-linked whole of life plan, and then moved to a rider on endowments, is now a product in its own right as a term assurance. It is also more commonly a part of menu benefit-style contracts too. So where could it go next? Well, the main debate centres around guaranteed premiums, with people questioning how long these will be available for in the market and how much more a client will pay for a guarantee.

While the debate continues ' and it is too early to predict the outcome ' there is certainly room for both reviewable and guaranteed premiums in this market. Research among IFAs recently carried out by Skandia shows that 80 to 90% believe they will continue to sell more guaranteed premiums than reviewable ones over the coming year. However, for those on a tighter budget, reviewable premiums offer a useful alternative.

Greater benefits

And product development has not stopped. Providers are adding more benefits and therefore more value all the time ' although these days they are more likely to focus on staged benefit-type cover than extra illnesses.

So has the CI bubble burst? Let's hope not. Undoubtedly, the rest of the year may well see an even bigger increase in sales, but the UK population is still dangerously underinsured in this area. Since CI cover continues to be good value for money, and the choice available to IFAs and their clients carries on growing wider ' there will be much to shout about in 2003 and beyond.

Shelley Robertson is protection brand manager at Skandia