The first UK products soon followed adopting the alternative name of ‘critical illness’. In the 30 years since then, the development of the CI concept has been characterised by standardisation and evolution; standardisation of agreed product standards, levels of cover and how these are defined; and evolution in the number of insured events and benefit triggers.
The original concept was: you are a survivor. The product would work by ‘accelerating’ some, or all, of the death benefit either to fund medical intervention or as compensation for the financial hardship resulting from serious illness. Cover would extend to cancer, stroke, heart attack and open-heart surgery to repair blocked coronary arteries. It has proved to be a very popular idea – with over 70m policies currently in force worldwide.
The very essence of CI is that it is linked to a medical diagnosis and perhaps the greatest challenge it faces going forward is how to keep pace with developments in clinical medicine and changes to health care policies.
Although the inspiration for CI is claimed by Dr Marius Barnard, the guts of today’s products arguably owe more to the efforts of John Joseph. Taking a stance for independent financial advisers, Mr Joseph helped to channel the process of definition standardisation. Before this, each insurer defined critical illness conditions independently, thus making the advice process difficult for both advisors and consumers.
Mr Joseph’s initiative led to the creation of Association of British Insurers best practice codes, the first of which was published in 1999. Similar work has since been done in many countries across the globe.
This drive for common event wordings and standardisation, from a sales and advice perspective, is also partly responsible for the sharp drop in the number of rejected CI claims alongside the improved disclosures gathered during the underwriting process.
Today there are CI products aimed at women, men and even unborn children. There are products that wrap together life cover, disability lump sum, income protection and terminal illness. There are even products that pay multiple times, which reinstate cover post-claim or that pay for second cancers.
One of the drivers for all the expansion and development of CI products is the desire of advisers wishing to offer the ‘best’ or most comprehensive cover, as typically measured by product comparison sites like Defaqto.
Just as the core components of modern cars may be traced back to the earliest vehicles, the core of CI dates back the three decades to its launch. From a start point of just four diseases, today it is not unusual for CI products to provide insurance against 50 or more events.
Adding features makes products more attractive and easier to sell, and may explain why it is possible to identify 164 separately named conditions in CI policies around the world. Despite this, it is cancer, stroke, heart attack and coronary artery bypass grafting (CABG) that provide the most valuable cover to the widest number of people. Together with kidney failure and paralysis, these four events account for 95 per cent of all CI claims in almost every market.
The comfort provided by insurance against dreaded health events is not a hard one to sell. Extending coverage to the rare and obscure is hardly a misstep yet the value added may be hard to divine. In a survey, there were almost 100 named conditions that have not had one claim notified against them. This begs the question of whether product evolution based on pure expansion has been a game changer or even if it offers fairness and transparency to customers.
Just as automotive engineers ensure that the latest models boast new and enhanced features, often as standard, CI developers have added to the tally of named conditions often without resorting to increased prices.
Adding more diseases – by sub-dividing major conditions, for example – inevitably results in more minor or less life-threatening conditions being included. These are typically conditions or events that might not merit a 100 per cent payment. To address this, products have been introduced using a tiered benefit approach. Typically payments of 5 per cent up to 100 per cent are made depending on the severity of the diagnosis. With historical symmetry, this innovation, first introduced in 2001, also originated in South Africa.
Paying a proportionate amount of the total cover – probably based on a minor manifestation of a chronic condition – opens the possibility of making multiple payments for the same event if it recurs or progresses, or for a new event. This approach represented a move away from the ‘all-or-nothing’ benefits yielded from early CI products. However, this has, to some extent, undermined the process of standardisation that was so dominant historically and has once again led to definitions that vary widely across the market.
The CI event definitions exist within the ever-expanding envelope of medical diagnostics and clinical practice – not at the cutting edge, for sure, but following close behind. However, the drivers of medical research and patient care are subtly different to the diagnostic criteria on which CI pricing is based. Perhaps surprisingly, there is concern in medical circles about the impact of the relentless search for the smallest manifestation of disease. Life insurers providing CI policies should share these concerns.
Cancer, for example is an umbrella term used to describe uncontrolled cellular growth. There is increasing discussion in academic medical circles about the over-diagnosis of non-lethal lesions potentially prompting unnecessary treatment. Consequently, there is a move to label low-grade, non-invasive cell mutations – previously considered as pre-cancerous at best – as indolent lesions of epithelial origin (IDLE). These could indeed prove idle as the tiny abnormalities, such as those discovered by cancer screening, may not ever develop into a life-threatening condition during a person’s lifetime and certainly the term of their CI policy. However, the patient hears only the ‘C’ word and not the reassurance of the oncologist. Such findings will trigger medical treatment and an expectation of a CI payment for cancer despite the non-critical aspect of the condition.
Heart attack diagnosis is based on detection in the blood of proteins particular to heart muscle cells and typically present in quantity only as cells die and break open during a coronary event. Increasingly sensitive tests can now detect ever-smaller amounts of these troponins that represent micro heart damage. This puts pressure on CI policies to pay out at a diagnostic point they were not priced to match.
Stroke definitions have also changed in recognition of physicians’ skill in detecting tiny areas of damage using increasingly sophisticated scanning equipment. Clearly, if pricing assumptions are to remain realistic, CI definitions must continually evolve to stay up to date with the changing medical environment.
Customer behaviour has also changed over three decades. People now use smart shopping techniques to obtain what they want with minimum fuss, often relying solely on the advice of their friends or other customer feedback. Complex CI products that require intensive underwriting or specialised advice may not appeal in such an environment. It seems likely that CI will continue its circular journey back to A and cater for this market with simple cover of only the core conditions.
Ross Campbell is chief underwriter of research and development for Gen Re
