Tackling new ground

Critical illness (CI) cover has been a real success story in the UK market, having captured interest from advisers and clients alike since the late 1980s.

For many advisers, the changes to CI insurance have only really been seen in the last month or so, as prices have risen. In addition, the new Association of British Insurers' (ABI) cancer definition has been adopted by the majority of companies. As a result these changes are possibly heralding the start of a new era for the products available in the market.

So what does the future hold from 2003 onwards? How easy it would be if advisers could have a crystal ball, gaze into it and see how the market is going to develop. With a little foresight, many advisers will be in a position to have one of the best chances of doing this ' by seeing what their clients want to buy and why.

It is important to explore the most obvious change in more detail ' price. The graph below shows how the average premium for a new quote has changed in the space of a few weeks.

The only way is up

The trend is upwards for term assurance, reflecting providers increasing their premiums. As a result, the price differential between guaranteed and reviewable plans are increasing, as table one shows. As you would expect, the longer the term, the greater the differential.

However, the whole of life (WOL) market shows a reduction in average premium, because there are now fewer companies in this small market sector.

Initial research conducted by Skandia indicates clients may opt for a reviewable premium product rather than a guaranteed one, once the premium differential is at least 25% or more than £10 a month for a £50-a-month case. But at what point the attractiveness of reviewable plans will really take over from guaranteed ones, will only become clearer as time progresses.

Comparing markets

Let us consider another reviewable model ' mortgages. In a period of uncertainty about rising mortgage rates, fixed-rate mortgages have become popular, allowing clients to lock in to certainty for a set timeframe. And in each case, the client has to take a view as to whether this will end up being a wise decision or not. It is 'horses for courses' and no different for CI cover. In fact, it is easier since advisers can see new business premiums are extraordinarily unlikely to fall in the near future. Or if they do, it will be because there is a compromise with the amount or the type of cover available.

So the next question is, what do advisers mean by reviewable contracts? Since one reason for the guaranteed price increases and withdrawal by some reinsurers from this market sector is uncertainty ' where do advisers go from here?

Advisers have long sold reviewable plans. Those where the premium can be reviewed, but cover is guaranteed for a set period of time or for whole of life. Customers are also used to reviewable plans where premiums and cover can change ' annual house insurance and pet insurance contracts, for example.

But in both cases the person selling or buying knows how long their cover is guaranteed for. Advisers know customer confidence is badly damaged if a company decides to change some of the fundamental aspects of its cover at renewal.

For example, there has been pressure on household insurers to maintain their flood damage cover even though they have announced their intention to exclude this on renewal for customers who live in areas where there has been considerable flooding in recent years.

And if there is a lesson to learn for advisers, then it is to ensure they get it right and explain what is covered, for how long and the premium payment basis.

Table two summarises the general differences in the market at present.

Clearly the ideal would be to offer a client the best of every world, guaranteed premiums, definitions and cover for life. But this product, if it did exist in its purest sense, would probably be outside most clients' price ranges.

Looking ahead

So the final question is where do advisers go from here?

At the moment, advisers have a time zone where some providers have changed rates but not changed their cancer definition to the new ABI one. Some have changed nothing and others have changed both.

Therefore, given this scenario, advisers ought to ensure they are not just comparing the premiums and the illnesses covered, but also the cancer definitions. Since the difference in definition is for one of the core illnesses, it deserves advisers explaining what the potential impact of this is to male clients wherever possible ' one excludes early stage prostate cancers and one does not.

This will allow clients to be informed and to choose wisely. It may even be worth including this as a point on 'reasons why' letters to ensure advisers have it documented.

Whatever happens to the direction of CI product developments, the fundamental issue is that clients still need cover. Even though the average premium has increased, it still offers excellent value for money. Our role as an industry is to ensure this continues.

This means advisers must continue to develop products which deliver value and also continue to build consumer confidence both at outset and at the point of claim.

CI cover is essentially a promise to pay. The client will only really know how valuable the cover is at the point of claim. Above all else, as an industry advisers have to make sure that this experience meets the client's expectations and gives them the financial support they were expecting at a critical time in their lives.

Shelley Robertson is protection brand manager at Skandia