. 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.
Conditions cull
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.”
Some believe it is possible to go further still. For instance, Mr Lakey would like to see insurers move to an outcome- rather than condition-based product where, as an example, a claim is paid in the event of the insured suffering a condition that is permanent and causes loss of motor function.
Moving to this could introduce more clarity for policyholders. “After 30 minutes on Google, I can come up with 40 rare neurological conditions that could be added to a CII policy,” he explains.
“But what happens if a client is diagnosed with a condition that has exactly the same outcome, but is not covered? Move to outcome and insurers would end up paying more claims, but consumers would have a lot more certainty.”
Simpler products
Simplifying condition lists in this way will help to engage more consumers and advisers, but the white paper also encourages insurers to take a more radical approach. Products that cover a limited number of the main conditions could, it says, appeal to individuals who find the mainstream product too complicated.
Insurers AIG and Sun Life Direct, have already launched products that pay out for three of the main conditions – heart attack, stroke and cancer. The Sun Life plan, Family Life Insurance, is available direct and pays out 25 per cent of the sum assured in the event of the claim, while the AIG plan, Key3, pays the full sum assured and is available through advisers.
Although it was only launched in August, Vicky Churcher, intermediary director at AIG Life, is pleased with the way the product has been received. “We thought it might be sold through telephony, but we have seen a lot of sales through mortgage brokers who have never touched CII before. They like the simplicity, especially after an arduous mortgage sale,” Ms Churcher explains.
Tapping into other niches could see also products designed with a different amount of conditions, but also those targeting specific market segments. For example, a digital product offering a lower amount of cover for conditions that are more likely to affect younger people, such as cancer and multiple sclerosis, could appeal to millennials.
While product development departments may welcome this, Mr Edwards is concerned that sometimes these types of innovation are not given the opportunity they deserve. “It can take time for these new products to gain traction, but insurers can be obsessed with short-term results,” he says. “As well as coming up with new ideas, we need to stick with them.”
Price sensitivities
Prices have also come under attack. The way portals and network panels work means the cost of cover is often the key determinant for product selection. In addition, compliance requirements force advisers to justify why they haven’t recommended the cheapest plan.
But this focus on price has distorted the market. To achieve the top spot in the price tables, insurers are forced to load the premium more during the underwriting process. As a result, some customers who would have been regarded as standard risks 20 years ago are now classed as impaired lives.
Unfortunately, with the customer left wondering what happened to the initial price, this approach does little for the public’s perception of the industry. To resolve this, the white paper calls on the industry to be more inclusive in its pricing.
Steps are already being taken to remove this price disconnect. UnderwriteMe, for example, allows advisers to compare fully underwritten quotes rather than have to contact each insurer separately with the client’s medical history and then assess which product is the most suitable.
Hybrid model
The white paper also called for the industry to look again at the hybrid model, which brings together different protection products to reflect the needs of the consumer. It might pay a small lump sum on diagnosis of a critical illness, followed by a regular income if the policyholder is then unable to return to work.
This type of product has already been on the market in the shape of AIG’s Real Life Cover, but Churcher admits it did not really work. “We included unemployment cover, which made it complicated and unaffordable, but we also struggled with the portals, who were not sure where to put it,” she says. “We are looking at it again, but it would definitely need to be simpler.”
More work is also needed on image. Just how distorted the public’s perception is can be seen in the claims statistics. While ABI figures show that 97 per cent of protection claims were paid in 2015, a survey by advisers Drewberry found consumers thought insurers had only paid out 72 per cent of claims.
The success of the Seven Families initiative for income protection is spurring some on to call for a similar campaign for CII. There are also mutterings of a US-style protection awareness week or month.
However, with more than 17,000 CII claims paid out in 2015, finding ways to enable more people to benefit from the financial security that these plans can provide is an important objective for the protection industry.
