Critical illness: High TPD declinature rates are detrimental to product sales
Intermediaries have called for a withdrawal of all existing total permanent disability (TPD) policies.
In a seminar discussion held by Paul Cowman, head of protection at Prudential, advisers suggested that recalling all present TPD policies, and replacing them with something more comprehensive, could be one option for the product. "While the new cover may be more expensive, at least customers will understand what they are covered for," said one of the delegates. Other intermediaries agreed.
Talking about the future of TPD, Cowman said he believes the design of the product is flawed. "There is too much subjectivity involved. There is a mismatch between what it offers and what policyholders think it offers. Premiums would probably be two or three times higher if it offered what consumers thought they had got," he said.
Commenting on the present declinature rate, Cowman said it was appalling that one in two TPD claims are declined. He said: "In any other industry you would not get away with such a high decline rate."
He said the industry was partly to blame for the product's failings. "We have not done a marvellous job as an industry to promote this product. The amount of mistakes we have made would probably not be allowed in any other industry."
Also looking at critical illness (CI) insurance, Cowman said that many people no longer think it is a great product.
"The lack of explanation of what is and what isn't covered has caused confusion among consumers, which has in turn led to an increased lack of confidence," he said.
He believes that in many instances the product had been incorrectly sold. "Most policyholders only have enough cover to cover their mortgages and that is hardly enough. This could be the downfall of the product," he said.
"Critical illness insurance sold with income protection is a much better fit and would offer more comprehensive cover," he added.
In another session at the COVER Forum where he examined the protection market as a whole, Cowman said he thought the future looked rather bleak.
"The market has started to slow down and it is now in real danger of decreasing," he said. "There has to be a change."
