Road to recovery

A decade ago players in the financial services industry predicted that the critical illness market would soar, especially within the group critical illness market as employers became more aware of the benefits of the product.

While critical illness sales may have blossomed a few years ago, the picture today is far less rosy and for many the sector’s future hangs in the balance.

After a peak in critical illness policies sold in 2002 and 2003, when product sales exceeded the million mark, the critical illness market has since experienced a year-on-year fall. The industry has put this down to the fact that consumers and intermediaries alike have lost trust in the product.

The consensus is that the high proportion of rejected claims – either because policyholders did not adhere to the strict conditions or because of non-disclosure – has left a mark on the critical illness sector.

Andy Couchman, co-editor of the Protection Review, explained that the broader public shares a general belief that insurance companies either do not pay claims or that they look for reasons not to pay them, and this damaging perception has caused many to simply steer clear of the product.

Add to this the current downturn in the mortgage market and the belt-tightening affect of the credit crunch, which has led many budget-conscious consumers opting out of their insurance policies as a cost-cutting exercise, and the future of critical illness cover looks a lot less promising than it did 10 years ago.

As insurance providers and brokers report a drop in sales of life and critical illness cover, Mr Couchman explained that the road to recovery for the critical illness sector lies in getting the basics right. The basics being to restore consumer trust in the product and ensuring that the definitions that go into these products are robust. However, thanks to constant medical innovation, this is something easier said than done.

As a way of fool-proofing critical illness products against rapid medical innovations, insurers have come forward with more and more detailed definitions of what is and is not covered under critical illness cover with the net result being that today the average client and his adviser have to approach critical illness policies armed with a medical dictionary, as the terminology has become increasingly technical and complex.

Mr Couchman said: “Ultimately, what I think the industry should move towards is a simple, yet effective system whereby if your doctor diagnoses you as suffering from a life-threatening cancer, for example, then your policy pays out. If your doctor says it is not a life threatening disease, then the policy does not pay. At the moment we have a situation where most individuals look at a policy and are completely clueless about half of the terms used in it. This inevitably leads to the perception that the insurers are looking for ways to get out of paying. While this is not true – in fact companies today are paying out more than ever – you have to recognise the importance of the perceptions that are created.”