Insurers consider product but are wary of difficulties
Another version of the severity-based protection product recently launched by Prudential could be on the horizon. Royal Liver has revealed it was considering developing a product that would base payouts on the financial implications a policyholder may suffer as a result of illness or injury.
Though such a product is still very much on the drawing board, Andy Milburn, IFA market manager at Royal Liver, confessed the insurer had contemplated inventing a cover that would pay out on the financial implications an illness or injury would have on a claimant.
However, Milburn admitted the idea was currently on the back burner because of its complexity.
He said: "We considered launching a severity-based product with Munich Re. It got as far as claims assessment before we both thought it became very complicated. That was a good 18 months or so ago.
"Since then we have given it some thought, but at the moment things like putting pension term assurance in our menu, improving our income protection product, launching online business protection and renewable cover are probably options that would be more valuable to us," he added.
Commenting on the possibility of launching a financial impact-based product, Alan Lakey, principal of Highclere Financial Services, said: "I am extremely wary regarding this type of plan because it allows subjectivity to enter the claim process.
"The issue relates to fairness and transparency. For example, say two policyholders each arrange a plan with Royal Liver and they both suffer an identical illness. The illness impact is greater on one policyholder because they cannot easily get to work due to the condition, whereas the other one can work locally at their office. It could be that Royal Liver pays the former a sum but not the latter.
"While they would argue that this is exactly what the plan is designed to do, I believe it is a series of arguments waiting to happen, and will likely keep the Ombudsman busy for years," Lakey added.
"The critical illness concept is still relatively simple and clients can understand it because it is primarily black and white with a few grey areas. Subjective claims are all grey and will undoubtedly unsettle a number of potential clients, particularly when consumer journalists start headlining their pages with worrying stories.
"This concept is very good news for reinsurers but nobody else," he concluded.
In July this year, Prudential launched a new protection product that pays out on the severity of the illness and is also matched to the financial impact this has on the claimant's lifestyle.
