OpinionFeb 15 2016

From committee to compassion over critical illness

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From committee to compassion over critical illness
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There have been two stories in recent weeks about non-payment of critical illness claims in the Mail on Sunday.

One was a clear case of misrepresentation, for which the appropriate action had been taken as per ABI guidelines and even in the court of public opinion of the website’s comments section.

The previous tremendously sad story was about Hein Pretorius, who lost a leg following a motorcycle accident and his two insurers have not paid his critical illness (CI) claim. The insurers’ definitions required the loss of two limbs (as per the standard ABI definition) rather than one limb.

Unfortunately, there will always be stories like this with the current design of CI products. I want to explain why this is the case and also share what could happen to improve the situation.

Any changes to claim definitions can also change the likelihood of a claim. Data tells us many more people will lose one limb than two – and so there will be a difference in cost for the alternative definitions. The last ABI statement of best practice on CI introduced a requirement that any “ABI+” definitions must cause an expectation of more claims from the policy. This rightly means there are no “free” conditions in the numbers game that CI all too often becomes.

The chances of Mr Pretorius suffering cancer or a heart attack would have been much greater than suffering the loss of a limb, let alone two. Therefore even a thorough evaluation of policy conditions would not have focused on this particular definition.

This really highlights the difficulty of advising on and buying CI products in their current form. You could buy or recommend the product with the best 50 definitions, but if no.51 is the one you suffer from how could anybody possibly have predicted that, let alone make a recommendation on it.

Arguing improvements in definitions should be retrospectively applied to existing policyholders sounds attractive but is problematic. If your insurer can afford to do this it was probably making too much money on the policies in the first place, or the changes or number of existing customers are so minimal as to not really matter. Would policyholders rather have this change or be charged less each month for the cover they actually originally bought?

Today many companies are hooked on the instant hit of press coverage and attention that comes with tinkering with definitions

So do we accept that, sadly, difficult cases like this will always exist wherever we draw the line? Or is it possible to do something to make this better for future customers? I have three specific thoughts on how things could improve as we look ahead.

There must be more focus on keeping definitions consistent over time. Today many companies are hooked on the instant hit of press coverage and attention that comes with tinkering with definitions. If a change is made the customer advantage should be clear. This should be weighed against the confusion that changes cause to existing policyholders and the market as a whole.

In the longer term public dissatisfaction could prompt a radically different model. A peer to peer community may develop where group decisions are made on who to pay claims to based on the merits of the claim event. The community could then decide what “critical illness” really means to them on a case by case basis. It will be fascinating to see if this consumer owned approach can be harnessed by insurance companies or if it will grow outside traditional sources.

More pragmatically this is another case that highlights why Income Protection may be a fairer form of insurance – or a safer bet for the consumer. IP is blind to the reason for an illness but only looks at the effect – measured in terms of ability to work. This can result in claims payments more in line with actual loss than the lottery style payments that can be associated with CI.

More than anything right now, we all need to think about how we explain declined claims when they occur – and work together to ensure that they happen less and less often in the future.

Andrew Wibberley is director of Alea Risk