Following the implementation of the new critical illness (CI) definitions in April, the IFA market has called for positive retrospective CI changes to be made to existing policies. What do you think about such an idea? What are the pros and cons?
Market viewsRoger Edwards, Bright GreyMy initial reaction to a question like this is always to think about what is right for the customer. At a high level, it seems logical to "upgrade" existing policies to include extra illnesses - especially if the new ones are rare conditions where the added risk cost is low. But this may set the wrong precedent if, at a later date, the provider adds in a new condition where the risk cost is very high - perhaps a newly identified and serious illness, like HIV was in the 1980s. Or if the provider wants to increase the level of critical illness (CI) cover. Adding new conditions and making such changes could destabilise the pricing of the whole book of business. That would be like Microsoft offering all owners of the Home Edition of Windows XP a free upgrade to Vista Professional Deluxe.
It, therefore, comes down to a business decision based on the current and future viability of each provider's book of CI risk, how many illnesses they already cover, how many they have added in and what changes they are likely to want to make in the future.
And this opens wider to an even more interesting debate. If one advocates retrospectively adding new illnesses, then there are equally persuasive arguments as to why illnesses should be removed from the list if a condition becomes treatable and is no longer considered critical. However if the condition is much less serious and the treatment works then it makes good sense from a price and customer value point-of-view to remove the condition for all policies.Mark McLeod, Towry Law Wealth Managers
With critical illness (CI) being such an important component in the employee benefits world, it is strange that sales of this benefit continue to lag behind life assurance, income protection and private healthcare.
The introduction of the new CI definitions should assist with this, both in terms of clarity and with the addition of more conditions. That said, it is vital that the implementation process is managed correctly. While any changes that improve contracts should be welcomed, retrospective amendments to policies are vital to protect the integrity of existing schemes.
From the providers' perspective, the administration burden has been significant with the introduction of pensions simplification and age discrimination in the last 12 months but this alone is no reason to penalise the consumer, especially given the technology that is currently in place.
It does seem that the providers are missing a trick here. Any opportunity that allows a provider to reassess their product offerings and secure a competitive advantage is an opportunity not to be missed.
From a clients' perspective, there are few better incentives than to stay with a provider that offers the same superior benefits to existing customers as it does to new customers.
Providers should take this opportunity to show that we are all working with the concept of Treating Customers Fairly (TCF).
Richard Walsh, Association of British Insurers
On the face of it, this seems like a sensible suggestion but, in reality, matters are far more complex. It would be wrong in principle, and probably illegal under the Unfair Terms in Consumer Contract Regulations, to unilaterally and retrospectively make a customer worse off than they would have been under the original contract.
Some changes are neutral in relation to current cover but, in the future, could result in contract disputes if a claim was declined under the new definition - again the legal position on unilateral changes would be relevant. If companies could identify a change that would definitely be of benefit to their existing customers they would be entitled to offer this benefit to those existing customers. This should be a matter for individual insurers to decide - as they do in other areas regarding benefits for new and existing customers. Do remember existing contracts have been priced on existing definitions - new customers would have to pay for additional benefits given to existing customers.
Justin Harper, LV=
The TCF principle quite rightly expects insurers to consider new and existing customers when making changes to such things as policy cover. But, while making positive retrospective changes to existing policies seems like the right thing to do, the case is far from clear-cut.
The original conditions under a critical illness (CI) contract represent a legal contract with the customer. That is what they bought and that is what they are paying for. The TCF argument needs to hold water across the different groups of policyholders within a company, not just those with an immediate interest.
Also, there is a danger of setting a precedent. What happens if the Association of British Insurers (ABI) definitions get tighter or are removed altogether? Should insurers start removing cover retrospectively too?
When a company introduces a new cover, it would ask for the required information as part of its revised underwriting process. But what happens if a customer has suffered for a retrospectively applied condition in the past? Would they be able to claim now? How would we prove it?
LV= welcomes the new ABI code as a means of helping customers and advisers to understand better what they are covered for. However, the jury is out about applying new definitions or better cover retrospectively. The risks of unfair treatment and more confusion are significant.
