ProtectionJan 22 2015

Protection spotlight: Critical update

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Protection spotlight: Critical update

Medical advances coupled with competition between insurers mean that critical illness insurance is constantly evolving, with new conditions added, less serious ones removed and new product features designed.

But, while this evolution means that plans stay fresh and relevant, it also has the potential to lead to customer confusion. To avoid this, the Association of British Insurers (ABI) updates its statement of best practice for critical illness insurance every three years, with the most recent update published in December 2014.

Medical advances

Eleven of the model definitions were amended in this update to reflect advances in medicine and improve clarity for consumers. These include the definitions for benign brain tumour, cancer, motor neurone disease and stroke.

Given the large number of claims for heart attacks, the changes to the definition for the condition are among the most significant. Although it still requires evidence of an acute myocardial infarction, the new wording takes into account improvements in the way medics determine that someone has suffered a heart attack.

This means that, while the previous definition required a rise in troponin, the cardiac enzymes that are evident when someone suffers a heart attack, the level required has been lowered from 1.0 ng/ml to 0.2 ng/ml.

Another area where medical advances have forced change is with major organ transplants. Although the main wording remains unchanged, detailing the organs and waiting lists that would trigger a claim, the updated one adds in the clause ‘from another person’.

This change reflects the increase in cases where individuals had their own organs transplanted. This is likely to become increasingly common with advances in stem cell medicine and, because there is no need for anti-rejection medication, presents less risk to the individual and therefore does not qualify for a critical illness payment.

Plain English

Medical advances have also enabled more detail to be added to some of the definitions. A good example of this is motor neurone disease. Rather than requiring a definite diagnosis from a consultant neurologist, the new wording lists four specific types including amyotrophic lateral sclerosis, which is the most common form among adults.

Alan Lakey, managing director of CIExpert, believes there are pros and cons to providing this detail. “When someone is diagnosed with one of the motor neurone diseases they will know instantly whether it is covered. But, although the four types listed account for around 99 per cent of cases, what happens to policyholders diagnosed with the remaining 1 per cent?” he says.

In some instances the changes are largely semantic. For example, with prostate cancer, the trigger for a claim has shifted from a Gleason score greater than six to a score of seven or above. This is in line with medical definitions which state that a Gleason score of between two and six is a low grade prostate cancer, with seven referring to an intermediate grade cancer and eight to 10 to a high grade cancer that will grow quickly.

Although this will not affect the number of claims that are paid, Chris McNab, manager of the protection proposition at LV=, says it will help to improve consumer confidence. “Where changes are made to the model definitions it is often to reduce the number of claims that are rejected,” he explains. “It is likely that some claims for prostate cancer were rejected as they only had a Gleason score of six so this will help to prevent customers having this misunderstanding.”

Partial and additional clarification

Another key change was the clarification of the difference between partial and additional payments. This states that the term partial payment refers to claims that are for less than the full sum assured and will reduce the amount of benefit remaining for future claims. Conversely, where a claim is made under the additional payment definition, these pay out further benefit so there is no reduction in the sum assured.

As an example, children’s critical illness cover is often included as an additional payment that does not affect the original sum assured. If a policyholder’s child is diagnosed with a critical illness, Aviva pays out the lesser of £25,000 or 50 per cent of the sum assured without reducing the sum assured.

Partial payments usually relate to more minor illnesses that would not warrant a claim under a policy. As a result, these payments are deducted from the sum assured.

For example LV= includes 20 partial payment conditions on its plan. Among these are accident hospitalisation cover and non-severe cardiomyopathy, which pay out the lower of 25 per cent of the sum assured and £25,000, and cerebral aneurysm requiring surgery or radiotherapy and partial loss of hearing, paying the lower of 12.5 per cent of the sum assured or £12,500.

Tom Conner, director at Drewberry Insurance welcomes this clarification. “Partial payments are becoming more common in critical illness products with Vitality’s serious illness cover policy leading the way and other insurers such as LV= following a similar partial payment model,” he says. “This will provide consumers with important clarification when comparing products.”

Time for change

The ABI requires member insurers to adopt the changes as soon as practical and no later than the end of December 2015. In addition, as the new wordings will affect risk, the changes will only apply to policies taken out after the statement has been implemented.

While some providers have already incorporated the amended ABI definitions into their plans, Dougy Grant, protection director at Aegon, expects to see most of the market step into line fairly quickly. “Companies that have not yet made the changes are unlikely to wait until the end of 2015 to implement them and we intend to make the changes well ahead of the deadline,” he says. “Waiting could lead to loss of sales, especially in a highly competitive market.”

Competition may force changes through quickly but it is also expected that many insurers will see the new statement of best practice as a catalyst for a more thorough product overhaul. This is the approach being taken at Aviva, where research and development underwriter Michael Whyte says the cost of implementing the ABI changes is a valid excuse to introduce product enhancements.

This is also reflected in the fact many insurers held off from major product overhauls in 2014, especially as the revised statement was initially expected in February.

As a result, there are already several products lined up for launch in the first few months of 2015. Many of these will bring new critical illnesses to the market, with rumours suggesting that conditions such as hepatitis B and C, endocarditis, pericarditis and even epilepsy will be introduced to plans this year.

Condition race

The addition of new conditions will result in increasingly longer lists of conditions. Although there are 23 conditions covered by ABI model wordings, according to CIExpert there are already 76 different critical illness conditions on the market, with this number set to rise further in 2015.

But this race to have the longest list is not necessarily good for consumers. With claims dominated by conditions such as cancer, heart attack, stroke and multiple sclerosis, many of the conditions being added to plans will only result in a small number of new claims. However, to the untrained eye, it will become increasingly difficult to determine whether one product offers better value than the next.

This has led to calls to move away from conditions and develop a severity-based definition. “If we could come up with an adequate definition of critical illness we could do away with the medical definitions, but this is far from simple,” says Mr Whyte. “I expect insurers will add new conditions this year to exploit some of the marginal benefits but I hope that the need to overhaul products will also focus attention on making products easier to understand.”

While the update to the statement of best practice is fairly minimal, it is expected to lead to a flood of product enhancements and launches. Although the industry hopes this will not inadvertently lead to more confusion for consumers, further refinement of the product always serves to underline the value of advice when taking out critical illness insurance.