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News Review: Protection

The scarcity of worthwhile analytical knowledge by

Alan Lakey, director, CIExpert

2012, I launched the CIExpert knowledge base website.

Income is crucial Te glue that holds every- thing together for all but the inordinately wealthy


Over the past decade the financial advice industry has focused its attention on wealth management with all manner of sites providing guidance on stochastic mod- elling, fund growth, chart cre- ation and the like. Tis focus on wealth man-

agement both within the in- dustry and the national per- sonal finance pages disguises the reality that many of those seeking to accumulate wealth will fail because of illness or premature death.

Protecting clients Any adviser adopting a holis- tic approach should necessar- ily start with protecting the clients’ most important asset – himself. Consider, each year over 45,000 people aged be- tween 35 and 54 will die and the same number will be di- agnosed with cancer. When you add in the heart

disease, stroke and multiple sclerosis figures you get close to 100,000 which, even al- lowing for some element of double-counting, nobody can dismiss as insignificant. Around 17 million people fall into this age group so each year 1/170 will die or suffer a life changing medical event. Te market for arranging

sound protection portfolios is huge which makes it all the more amazing to discover the paucity of worthwhile ana- lytical knowledge bases avail- able to advisers. Tis is one of the reasons why, in March


come. Income not only pays the bills but it funds lifestyle, aspirational purchases as well as savings and pension plans. Logic

therefore dic-

tates that our clients should all have ‘own occupation’ in- come protection insurance to provide a relevant income during extended periods of ill-health. Where feasible this must be the first port of call for any adviser, aſter all, how many clients will thank you for your fund selection skills and taxation expertise if he can no longer afford to con- tribute and he has no ongoing income? Not everybody is eligible income protection and


not everybody can ensure that the income generated re- flects their true income. In the main the insurers will check income details at claims stage which could involve the claim being downgraded if income has subsequently fallen. Oth- ers may find that the cost is prohibitive or the underwrit- ing so onerous as to preclude claims for conditions such as back complaints or stress.

A reasonable understudy In these instances critical ill- ness insurance can act as a reasonable understudy. In fact, even if income protec- tion is available and afford- able, a critical illness plan arranged alongside can prove a sensible method of provid- ing a capital sum to alleviate short-term worries or maybe


buy private treatment or con- valescence. A survey carried out a few

years back provided the dis- quieting news that over 60% of advisers selected a plan based around premiums. Imagine if we bought every product like this? We’d live in tents, drive Daewoo’s and per- manently scoff value baked beans. Surely it is best value that

we search for in everything we do. We all want a top of the range BMW but we want to pay Daewoo prices so we end up compromising with a Focus or something similar. To facilitate advisers’ ability

to make these determinations the CIExpert knowledge base enables plan selection based on quality of product or val- ue for money. It analyses all available plans assessing the worth of the plan definition by using up to date incident figures and turns the result into a condition score. Tis then resolves one of the di- lemmas facing advisers – how does plan A covering enceph- alitis and open-heart surgery compare with plan B that in- cludes a partial payment for early-stage prostate cancer?

Understanding claims reality Te knowledge base avoids the error easily made by those using generally avail- able statistics. For example, it is widely known that each year around 90,000 angio- plasty operations are carried out but, of these, only around 18,000 are multi-vessel opera- tions. Also, around 65% of the remainder will have suffered a previous heart attack or undergone some linked pro- cedure. Tus the true popula-

tion for the 25-65 age group is only about 3,100. Understanding the reality

of likely claims and the poten- tial for a plan definition to ac- tually pay out is the secret to sensible plan selection. Con- sider loss of limbs. Half the providers continue to use the ABI model wording which requires loss of two limbs whereas the better plans have moved across to loss of one limb. Statistically the differ- ence is enormous – latest fig- ures show 107 double limb losses compared with 2,080 single limbs annually.

“There are vast differences between the

competing plans” Similarly with the benign

brain tumour definition. Te ABI model wording requires permanent neurological defi- cit, whereas the better plans also meet a claim if the tu- mour is fully removed and the best plans extend this to partial removal. During 2011 there were nearly 4,000 new diagnoses of which 28% underwent

full removal and

75% were fully or partially removed. An apparent subtle distinction is seen to be of overriding importance. So, what is learned from

all this? Firstly, there are vast differences between the com- peting plans so if you believe that price should be the focus then think again. Secondly, statistics are used to inform actuaries regarding risk – as advisers we should similarly use them to determine plan selection.

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