ProtectionMar 24 2014

Critical confusion

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

In addition, to allow insurers to be recognised as offering enhanced cover, the term ABI+ was introduced to indicate the definition goes beyond that of the model wording. Subsequently it is not uncommon for insurers to offer 10 or more ABI+ definitions on their plans, which can bump the total conditions covered to in excess of 40. For example, on its guaranteed CI product Zurich includes 10 ABI+ definitions, covering 48 conditions while, of the 56 illnesses and conditions Skandia’s plan covers, 18 are ABI+.

Fifty shades

But, while the ABI definitions ensure some standardisation across plans, there can be huge variation in the enhancement offered by an insurer under the ABI+ definition. “It is a bit of an arms race,” says Richard Sandler, head of retail protection proposition development at Zurich. “Theoretically an insurer could change an ABI definition by a tiny amount, say move from 24 hours to 23 hours and 59 minutes, and claim it was ABI+. This would not really enhance the cover and can be misleading to consumers and advisers.”

A good example of the variety of ABI+ definitions available is the cover provided for third degree burns. The ABI definition states it applies to ‘burns that involve damage or destruction of the skin to its full depth through to the underlying tissue and covering at least 20 per cent of the body’s surface area’.

According to comparison tool CIExpert, while five insurers including Foresters, NFU Mutual and Scottish Widows adhere to this, there are a further seven variations under the ABI+ definition. Although more generous, typically triggering a payment where a proportion of the face or head suffers burns, attempting to compare them can be difficult.

For example, LV= enhances the ABI definition by stating it will pay out if the damage covers at least 20 per cent of the body’s surface area or 50 per cent of the surface area of the face or head. Aegon goes a step further by stating that in addition to the ABI’s 20 per cent of the body’s surface area, a claim would be paid if the policyholder suffered 50 per cent loss of the surface area of the face or 30 per cent loss of the surface areas of the head and neck.

Slightly more generous, Ageas, Aviva, Beagle Street and Legal & General offer to pay out if 20 per cent of the surface area of either the body or the face is damaged. And further detail is added by Friends Life and Skandia, both of which add cover for 30 per cent loss of the surface area of the face, where this includes the forehead and ears.

Creating confusion

The situation gets even more complicated for a benign brain tumour, with some policyholders standing to have a claim paid on one policy but declined altogether on another. While the ABI definition states that this is “a non-malignant tumour or cyst in the brain, cranial nerves or meninges within the skull resulting in permanent neurological deficit with persisting clinical symptoms but excluding tumours in the pituitary gland or angiomas”, there are plenty of variations under the ABI+ banner.

To enhance the definition, many of the insurers add in some form of surgery. For example Aviva extends the definition with the phrase ‘or requiring invasive surgery’ while several insurers including Ageas, Skandia and Zurich waive the persisting clinical symptoms if the benign brain tumour is surgically removed.

Increasing the number of claims that would qualify for a payment, Friends Life will pay on the removal of part or all of the tumour. While, most generous of all, LV= removes the requirement to have treatment or permanent neurological deficit with persisting clinical symptoms altogether and will make a payment on diagnosis alone.

The breadth of cover available under the simple ABI+ label has the potential for confusion and mis-selling as Alan Lakey, founder of CIExpert explains, “The race to add ABI+ definitions will lead to confusion. Some advisers are simply adding up the number of conditions without reading the small print,” he says. “The use of the ABI+ definition to cover so many variations is dangerous. It is like saying ‘I am a dog’ without explaining what type of dog you are.”

Adding value

Although these variations can make comparing products more difficult, some argue that this supports the importance of an advised sale. Being able to cut through the differences and determine which product offers the best value protection or gives the most generous cover to areas important to a client enables advisers to differentiate their service from that provided through comparison sites. Chris McNab, manager of protection products at LV=, adds, “It is an area where advisers can really demonstrate their value. By pointing out the key differences in definitions they can highlight what is available and the value they add. The variation in ABI+ definitions underlines the importance of reading the full definition.”

He also points to the availability of tools such as CIExpert that help advisers to identify the differences between plans. “Advisers can also look at the claims statistics to have the reassurance that an insurer is paying a high proportion of claims,” he adds.

Common sense

But, while guiding clients through the ABI+ definitions may be a valid way to demonstrate the value of advice, some insurers are also calling for the application of some common sense in the way these definitions are used.

With an insurer able to tweak cover very slightly to be able to use the ABI+ definition as a powerful marketing tool, some insurers would like to see the definition only being applied where there is a material difference in the cover. “An ABI+ definition has to add real benefit to a policyholder,” explains Steve Casey, head of marketing and propositions at Ageas Protect. “We will only add an ABI+ definition where our reinsurer charges us a risk premium due to the increased propensity for claims. We won’t include conditions on our products just to bump up the numbers.”

Thankfully, with the number of ABI+ definitions increasing on a weekly basis, further clarity on how the market applies them is likely this spring. Following a public consultation on its Statement of Best Practice for Critical Illness Cover towards the end of 2013, the ABI is expected to publish a revised version by early April. This will take into consideration all aspects of the way the industry operates including the use of ABI+ definitions.

Although this guidance is still to be finalised, those who have seen early drafts say it is looking to state that an ABI+ definition should only be used where it creates a material increase in the likelihood of a claim.

This move would be welcomed by insurers, especially as it may prevent more drastic action if the overuse of ABI+ definitions did lead to greater confusion. As well as being anti-competitive, a step such as reverting to the core conditions, could also disadvantage consumers. Dougy Grant, protection director at Aegon, explains, “There is a need to set minimum standards and the ABI has fulfilled that role effectively for a core set of conditions. The important point is to communicate clearly about what is - and is not - covered to allow fair treatment without stifling innovation.”

Creating a balance between product innovation and clarity for consumers is essential. With insurers keen to extend sales of CI, empty marketing messages could potentially damage the reputation of this product.