When a client finds that a policy will not pay out in circumstances that they expected it to, it com...
When a client finds that a policy will not pay out in circumstances that they expected it to, it comes as something of a shock. And if a client unexpectedly finds themselves without cover because their circumstances have changed, this can also come as a shock. Not only is this bad news for the client, it is bad for IFAs and insurers too. This is why IFAs and consumers today are demanding 'shock free' critical illness. Help is on the way in the form of the ABI statement of best practice for critical illness cover.
The statement of best practice is about improving clarity and applies to CI cover providers who are members of the ABI. It requires them to adopt the following:
l A standard way of presenting critical illness cover in key features.
l Adopting the model definitions as a minimum standard (these definitions for core and additional conditions and model exclusions were developed by the IFAA Project KING).
l Disclosure of age limits in illness headings.
l Disclosure of policy exclusions in key features.
l Disclosure of any obligations on the client to tell the insurer about changes in circumstances.
The standardisation of the key features document will ensure that CI cover is described in the same way regardless of different products, which will help clients to compare policies.
When the ABI put together the statement of best practice, the Critical Illness Working Party consulted widely. This included discussions with the Office of Fair Trading and the PIA Ombudsman as well as product providers and IFAs.
Until the statement of best practice is fully adopted by all providers, IFAs should still be vigilant for products that still have the power to give clients a few shocks. Here are some examples.
Shock 1 the hidden 'small print' prevented my pay-out
The small print of a policy often sets out the circumstances that will cancel the cover and is all too frequently buried deep in the policy documentation.
What is worse, the small print is often spread all over the policy document so only a client who is either a retired actuary or a former chess grand master will have any chance of figuring it out. If clients are not aware of the exclusions from the start, they may only find out when their claim is turned down. However, the ABI's statement requires all exclusions to be shown in key features where the client will see them. It also requires the small print to be contained in one section of the policy. Already, many IFAs are starting to take cover exclusions into account when considering the most appropriate policy.
Shock 2 my illness was covered but I did not meet the criteria
It is a shock for clients who find that they are not covered for an illness particularly if the discovery comes after the illness. This can happen if the definition of the illness provides significantly less cover than is implied by its heading.
One condition with the potential to cause shock is angioplasty. Most providers follow one of two approaches. Many will only pay out for an operation on two or more arteries. If the heading simply reads 'angioplasty', the client may believe that all angioplasty operations are covered.
However, figures from the British Cardiovascular Intervention Society show that over 80% of all angioplasty operations are on a single artery. As these are not covered by 'two artery definitions', fewer than 20% will get a pay-out as expected. Other providers will pay out for an angioplasty on one or more arteries (in other words, all angioplasties) but limit the amount paid.
Neither of these approaches need present the client with a shock. It depends on how clearly the cover is presented rather than the approach. Some companies have addressed this by using the heading 'angioplasty on two arteries' in place of just 'angioplasty' to ensure that clients understand what is covered.
Age limits
Another area where clarity (or lack of it) can cause a shock is illness definitions with age limits. This is an area specifically mentioned by the OFT in its second report on healthcare insurance. It cites an example of a provider who claims to cover Alzheimer's disease. However, an age limit is buried away in the wording of the definition. Once again, the heading promises more cover than the full definition delivers. Naturally, the client believes that the illness is covered but may get a shock at the point of claim.
The ABI statement of best practice will go a long way to reduce shocks for definitions with a model wording. The standardised definitions will mean that if the client sees the heading of the illness, then they can be sure that the cover is at least equivalent to the standard and need look no further. And when providers have adopted the statement, any age limits will need to be disclosed in key features as part of the heading of the illnesses. So it will be goodbye to another potential shock.
Shock 3 my partner has died or had a critical illness and I am no longer covered
A few policies have potential shocks for clients because they do not allow for a change in their personal circumstances. This can happen if a couple has joint cover and one partner has a critical illness or dies and the cover ends on the first death or critical illness. Most clients would expect their cover to continue. This problem is particularly acute if the policy is written as a standalone plan that ends on the first death. As there is no benefit paid on death, the client may not tell the insurer about the death of a partner, only to find out later that they have not been covered.
Cover for couples
One solution is separate policies or even independent benefits in one policy, although these solutions may increase the cost. Another is to offer replacement cover. Where a joint plan ends after a CI pay out, this would allow the unaffected partner to take out a replacement policy without underwriting up to a certain age.
Shock 4 I have changed my job and I am no longer covered
These days, how many of us stay in the same job for life? If we change jobs, the last thing on our mind is to tell our health insurer. However, if IFAs have clients with CI plans and hear that the client's job has changed (not necessarily to a different employer), it is worth checking this out. With some plans, failing to act could leave the client without full cover. Providers usually take one of three approaches to changes in occupation:
l The provider underwrites the person at the outset and the insurer accepts the risk of changes of occupation. The claim is assessed on the person's occupation at the time of the claim.
l The client is not required to tell the provider about the change but the claim is assessed on the occupation disclosed at the outset regardless of changes. This carries the risk that cover may not match the client's occupation at the time of a claim with the potential shock that the cover is no longer appropriate.
l Some providers require notification of changes in occupation and reserve the right to re-underwrite. This approach carries the risk (for the client) that the client forgets to tell the insurer. If so, they may find that their permanent total disability or waiver claim is declined.
Good practice here is to remind the client at regular intervals to reduce the risk of this happening. However, even if they do tell the insurer, the risk remains that their cover changes or may even be stopped. It could be that they are no longer eligible for, say, own occupation PTD because their job has become either higher risk or more specialised such as a medic who becomes a surgeon.
The statement of best practice will help to reduce these potential shocks. If the provider requires notification of a change of occupation, this will need to be disclosed, together with the potential consequences, in key features. Once again, this will help clients understand the nature of the contract and any ongoing obligations they have to tell their insurer and what could happen if they do not.
Shock 5 my policy no longer suits me and it is too late to change to another
Most product providers are now tuned in to the fact that policies should adapt to changes in the client's life.
Clients rightly expect this. Most companies include guaranteed insurability options, which allow the client to increase the sum assured on set occasions (for example, marriage, children, moving house, or a new job) usually up to a specified age.
Shock 6 I did not get a good policy; and only found out when I could not claim
By far the best way to get 'shock free CI cover' is to take the advice of an IFA. Getting the right policy at the start and having it properly explained will ensure shock free cover throughout the life of the policy and shock free claims. Consumer attitudes are changing rapidly and clients are rightly becoming more and more demanding. It simply is not good enough to design policies that cannot adapt to clients' changing needs.
Neither is it acceptable for policies to trip clients up when they claim. However, the ABI statement of best practice will spur on providers to design policies with less small print and fewer potential shocks and will further reduce shocks through standardised definitions and clearer, fairer, up-front disclosure in key features.
Nick Kirwan is manager, product development at Pegasus and chairman of the ABI Critical Illness Working Party
