Providing a life-changing sum of money upon diagnosis of a serious condition such as cancer has historically made critical illness insurance (CII) a popular protection product
. But with sales going into reverse over the past few years, many believe it is time for a change.
Certainly, the product is very different to the one launched in South Africa in 1983. What was then a simple product providing a relatively modest payout on the diagnosis of one of four conditions – cancer, stroke, heart attack and coronary bypass surgery – has morphed into a much more complex proposition.
Complexity and confusion
As well as a move to a lottery-style payout, the number of conditions covered has expanded significantly. Today, there are 22 Association of British Insurer (ABI) standard definitions, three times as many non-standard ones, and numerous partial payments. Most plans boast at least 50 conditions and some offer nearly double this number.
However, while this might make the product sound more generous, Alan Lakey, director of CIExpert, says it leads to confusion for consumers and advisers. “If an adviser picks up a CII brochure and they do not understand the conditions and wordings, they will not sell it. The complexity puts people off.”
Problems also arise when comparing products. The bulk of sales are conducted through portals, where the cheapest product, or the one that covers most conditions, will inevitably appear as the best.
There are also compliance issues. Faced with a choice between two products, one having a slightly longer list of conditions than the other, advisers can be concerned about the ramifications of recommending the more limited plan if the client then contracts a condition that is only available on the other.
These factors have stunted innovation in the market. “No one feels they can break away from the conditions race,” says Roger Edwards, managing director of Roger Edwards Marketing. “If you don’t have the highest number of conditions on your plan then you risk losing sales.”
With the market at an impasse, the Protection Review published a white paper in November 2016 looking at how to grow the CII market. This recommends five key actions for the industry to adopt.
First, it wants to address the conditions race. Rather than blindly adding more and more conditions, it recommends grouping together similar ones.
This approach is already undertaken by some insurers. For example, when Royal London updated its cover in October, it incorporated Kennedy’s disease into the definition for motor neurone disease instead of adding it as a new condition.
“We are always looking at how we can make the product easier for customers to understand,” says Jennifer Gilchrist, senior product development manager at Royal London.
“The millions of pounds of claims paid out each year shows the product is not broken, but we do need to make it simpler so more consumers will engage with it.”