As income protection (IP) insurance emerges from a year of intensive reappraisal, many eyes will be focused on the impact this reappraisal will have on sales volumes and profitability
Spurred on by the Office of Fair Trading's report on health insurance, insurers and reinsurers have co-operated together to agree a 'Statement of Best Practice' encompassing the introduction of 'key features' documents at point of sale, operational guidelines for eight key policy conditions and generic terminology across the industry. This has been well received by consumer bodies, regulators, ombudsmen and intermediaries alike.
Key features documents, set out in a common industry format and plain, intelligible language:
l What each company's product does and does not cover.
l The choices open to consumers in ensuring that the features chosen match their requirements both now and in the future.
l The criteria which will govern their eligibility to claim.
This greater transparency is designed to ensure that both purchasers and intermediaries can more easily compare different companies' products and enjoy a far greater appreciation of what this form of insurance can provide.
Policy guidelines
Policy condition guidelines covering definitions of incapacity, limitation of benefit, proportionate/rehabilitation benefit, change of occupation, claims notification periods, deferred periods, waiver of premium and pregnancy, describe the purpose of the wording, the insurer's obligation to the consumer in describing their practice and recommendations as to how the wordings should be applied.
This sets standards of practice that aim to ensure the service delivered to customers matches the promises made at point of sale, and it is hoped that the statement as a whole will boost understanding of the product, improve sales and reduce disputes at the time of claim.
This spirit of co-operation has also spread to the sharing of claims expertise, with the aim of successfully returning more claimants to the workforce. A group of 14 insurers and three reinsurers have established a partnership with the government's New Deal for Disabled People (NDDP) initiative in 12 regions of the country which:
l Provides an opportunity for IP claimants in those areas to use NDDP facilities.
l Sees insurers promoting the schemes with local employers.
l Brings the public and private sectors together to share expertise, agree best practice and promote early intervention.
Three working parties have recently been formed to:
l Co-ordinate this activity among the insurers, the NDDP schemes run by the Employment Service and those run by the private sector.
l Promote the partnership to encourage more people to come forward.
l Extend the group to bring in other potential partners such as employer groups and health professionals.
As the Government's welfare reform programme unfolds, it is hoped that this co-operation can be broadened to integrate the public/private benefit structure more effectively.
It is also hoped that quality standards can be established for health promotion, absence management, rehabilitation and retraining schemes, which have the potential to improve the health of the workforce and reduce the impact of disability.
Incapacity benefit reform
Although welfare reform activity has been largely pre-occupied with establishing a structure for pensions, reform of the incapacity benefit system still features highly on the Government's list of priorities.
Following the withdrawal of a proposal to discount individual IP payments against State incapacity benefit, which would have ensured people had some incentive to effect private insurance, we have seen the creation of greater scope within stakeholder pensions for the inclusion of disability risk benefits.
With a more enlightened market approach beginning to emerge, clearer information being provided at point of sale and the public increasingly picking up on the message that there is a growing need to protect themselves, this is an opportunity that this sector of the financial services industry must grasp if yet another false dawn is to be avoided.
Encouragingly, we are already witnessing more innovative use of the IP concept so that those unable to afford full protection of their income can at least protect their major items of expenditure, with a particular focus on the mortgage market.
The lessons of critical illness products are clearly being learned and, with the potential to stress the much broader breadth of cover provided by IP in terms of those conditions which may jeopardise a person's ability to work, there is scope to make further inroads.
As we reflect on the fifth consecutive year of growth in IP sales and as the full pattern of the Government's health and welfare proposals emerge, prospects look good. Opportunities will also emerge to integrate IP with other insurance products, both life and general, and there is much to be gained from co-ordinating rehabilitation initiatives in the life and general insurance markets.
At the same time, we must remember the lessons of the early 1990s and ensure that growth and product innovation are matched by the careful monitoring of data.
The recent release of Continuous Morbidity Investigation experience up to 1996 suggests that our current pricing basis is reasonably sound. But the changing dynamics of the product - for example, expenditure protection versus income protection and the introduction of activities of daily working - together with changes in the external environment, such as the economy, work and disease patterns, will also require careful monitoring if we are to capitalise on the opportunities ahead of us.
IP has begun to move, but there is still a long way to go.
Alan Tyler, health and welfare strategy unit, Swiss Re
