In focus – critical illness


530,214 policies sold in 2009 represented a 3.8% increase over 2008, and it would be a surprise if the next Term & Health Watch shows any significant deterioration for 2010. Early indications are that protection


sales generally did pretty well during 2010 despite a sluggish mortgage market. Not surprisingly, those insurers that


sell primarily on price seem to have fared better than those that do not. Legal & General reports its IFA market share to have increased by 30% between the end of the third quarter of 2009 and the end of the third quarter of 2010 while Aviva is pleased that its new business volumes were largely flat during 2010 – as they had fallen by around 10% the previous year. On the other hand, Bright Grey and Scottish Provident, which place more emphasis on quality features and benefits, estimate that their combined CI sales fell by around 10% in 2010. Ian Smart, head of product


development and technical support at Bright Grey and Scottish Provident, says: “The market has been very tough because of the dip in the mortgage market and, whereas about half of our business was mortgage-related prior to the credit crunch, the proportion is now nearer a third. But we don’t believe that the mortgage market will continue to be as bad as some people are predicting, and some mortgage brokers and other intermediaries are reacting and trying to sell more CI for family protection and looking up clients with mortgages who didn’t have CI in the first place. Obviously the ruling this March by


the European Court of Justice that will prevent insurers from using gender as a basis for calculating premiums with effect from December 2012 is going to do little to help pricing(see pages 20-21). Many commentators fear that protection rates generally will rise across the board as insurance companies try to build in the new risk and have to update their systems. Even without this ruling, Henrietta


Oxlade, an IFA with City-based Bond Wealth Management, confirms that price often tends to be a major issue at present, especially once clients have reached their late 30s and the premiums involved have become much steeper. She recalls in particular a recent meeting with a 38 year-old male smoker she had quoted for on a number of options.


April 2011 www.hi-mag.com “Some mortgage brokers and


other intermediaries are reacting and trying to sell more CI for family protection and looking up


clients with mortgages who didn’t have CI in the first place”


Ian Smart, Bright Grey and Scottish Provident “He pointed out that the life cover had terminal illness


cover that paid out the sum assured if you received a 12 month terminal prognosis,” explains Oxlade. “So I found it hard to persuade him to take out CI because he reasoned that if he got something really nasty he would get a pay- out he could use while he was still alive, and if he got a critical illness that allowed him to get back to work quickly he wouldn’t have that much need of cover anyway. “Non-smoking clients in their 20s and early 30s have


far fewer objections because the costs of CI are minimal, and life cover is never in question when someone has dependants. But in the current economic environment you are likely to get these objections from older clients during the sales process about the need, although I have never yet had a cancellation.”


CLAIMS ISSUES Nevertheless, at least claims pay-out statistics have continued to improve steadily throughout the economic downturn. The ABI is obviously hoping that its new Statement of


Best Practice for Critical Illness Insurance produced this February will help to reduce claims disputes even further. The changes introduced include the standardisation of the pre-existing conditions exclusion for children’s CI, a change in the wording to the terminal illness definition in the light of changing medical science, and


VALUABLE NEW COMPARISON TOOL


Highclere Financial Services’ Alan Lakey has developed a dedicated CI website which aims to unravel the mysteries behind the complex world of definitions and values, and to compare the cover offered by the different providers. The Critical Illness Insider, which will soon be available at www.criticalillnessinsider.com, has taken over two years to design and comes in two parts, one for consumers and one for advisers. Adviser subscription is £20 a month. The website has sections highlighting the precise details of each CI condition, with incidences and


claims details as well as comments about the differences between the providers. Another section enables advisers to select two providers and compare them head to head. A further section provides a graphic rating for different age groups, sexes and smoker status. The


rating system is based on painstaking research since 2008, where actual incidence figures have been compiled and assessed in terms of the company definitions and a score given based on anticipated claim potential. Additionally, there are sections with provider literature and with statistical information on issues such as conditions, claims and declinatures. Lakey says: “We will also be aiming to build up a library of historic documents so that advisers can compare ‘old’ policies with today’s version, and there will be separate sections for journalists and for consumers. The idea is to increase confidence in CI amongst both advisers and consumers so that the take-up, which is currently around 16%, is far higher in future years. “Surveys show the majority of advisers sell on price and not quality. Part of the reason is due to


their inability to judge the relative values of the competing conditions and also to the difficulty in assessing whether having a condition included will actually result in a successful claim.”


HealthInsurance


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clarity improvements to the cancer and Parkinson’s disease definitions. But most attention has surrounded a new set of standard definitions introduced for total permanent disability (TPD). Although TPD only accounts for 3% of all CI claims, the fact that over half of these are declined has always made the issue a highly emotive subject. New, more descriptive headings and standard definitions for own occupation, suited occupation, any occupation, activities of daily work and activities of daily living have now made this element of cover clearer. Alan Lakey, senior partner of Highclere


Financial Services, a specialist IFA based in Hemel Hemsptead in Hertfordshire, says: “The good news is that they have scuppered the silly name they were previously intending to give the condition but the bad news is they have retained the full name Total and Permanent Disability. I believe that the word ‘total’ is misleading because you can still be covered if you are not totally disabled but are permanently unable to do your own occupation. “I don’t think that the changes


will significantly reduce the 55% of declined TPD claims but they will at least give some harmonisation so that any consumer wanting to do their own research will find it less confusing. Only the own occupation and suited definitions are worthwhile in my opinion. The chances of having a valid claim under the others are very small.”


HI


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