Tiered benefits under critical illness (CI) policies could make the products more difficult to under...
Tiered benefits under critical illness (CI) policies could make the products more difficult to understand and compare, according to the majority of IFAs.
In a survey conducted at the COVER forum by Pegasus, 48.8% of IFAs disagreed with the statement that overall, tiered benefits for CI plans would be good for the UK protection market. And 51.2% said that tiered benefits would not meet the needs of most customers.
A CI illness policy with tiered benefits - such as those available in South Africa and Australia - will pay out a varying amount of money depending on the type and the severity of the illness. For example, a payout for a malignant tumour would depend on the stage it had reached - the earlier the diagnosis the lower the payout. The advantage of this type of product would be that premiums would be reduced.
But Nick Kirwan, manager of product development at Pegasus, argued that the difficulty for the UK would be adjusting from a level benefit mentality to accepting and understanding tiered benefits.
He said: "I am not sure tiered benefits are something the UK market is ready for. I think it would set the market back because it would cause much confusion and it would again be impossible to compare products."
Despite the majority vote from IFAs against tiered benefits, this concept is not completely without support. Julie Hopkins, chief underwriter at Hannover Life Re (UK), agreed that it is a difficult concept to understand, but said that although it is not necessarily the way forward for critical illness in the UK, the industry does need to consider it.
She said: "There will always be changes to both the incidence of disease and the development of new techniques for dealing with it. For example an angioplasty is a treatment where many people are only kept in hospital overnight and may return to work in a week, so would they need the full level of cover for this?"
Geoff Brown, managing director of BUPA, also believes that tiered benefits will soon appear in the UK. "BUPA is currently looking at the possibility of tiered products. I do see a move towards tiered benefits, but they are harder to explain to clients. CI is a simple product made complex when you get into altering the level of payout for certain conditions," he said.
Kirwan added that tiered benefits would cause a problem over product clarity. "There are now standard definitions of illness in place and tiered benefits would mean yet more definitions. This could lead to contentious issues developing over the definitions of severity and whether the client would be happy with it when they realised that they had to make a claim" he said.
There is also the possibility that people could delay getting a diagnosis for an illness in order to gain from higher benefits.
However, Hopkins said: "Insurers cannot ameliorate for peoples' choices. Realistically everyone needs some form of CI cover. A tiered benefit is better than having none at all and could offer increased cover where current definitions are particularly robust."
