Jeff PrestridgeJul 12 2017

Wolves at the family doors

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Critical illness cover is an invaluable financial protection tool. Even more so in recent years as insurance companies have striven to meet the great percentage of claims.

The statistics are impressive. According to the navel-gazing Association of British Insurers, more than £1bn was paid out in critical illness claims last year, at an average pay-out of just under £68,000. Enough to keep many wolves from numerous families’ doors at a time of great turmoil.

More reassuringly, more than 92 per cent of claims were met. Put another way, fewer than eight of every 100 claims made were refused. Impressive.

At the time, the figures prompted Raluca Boroianu-Omura, the association’s head of health and protection, to trill with excitement like some exotic South American parrot.

She said: "Serious illness or injury can occur at any time and will inevitably cause strain on families financially, as well as personally. Products such as income protection, life insurance and critical illness cover improve the financial resilience of individuals, households and businesses and give peace of mind." Well trilled. I trill in support.

Yet it seems critical illness is now a victim of its own success. The more claims that are routinely met, the less profitable the cover becomes for those insurance companies that provide it and the reinsurers that end up meeting the claims.

Rather than rejoicing at a product that delivers what it says on the tin – and going out and boosting sales by trying to convince every homeowner that it is as vital a protection tool as life cover – the insurers are now looking at ways to cut costs.

The evidence is clear. In recent months, the ABI’s critical illness working group has been seeking opinions from specialist protection advisers on proposed changes to the statement of best practice. Some of these are not in the best interests of consumers.

This working group has been existence in one shape or form for 18 years – and we have John Joseph of John Joseph Financial Services to thank for its creation.

It was Mr Joseph, a protection insurance specialist, who first drew attention to the bizarre wording used in many insurers’ policy terms and who called for greater conformity. The working group was born and the statement of best practice followed – a document that is reviewed and updated every three years.

Although the statement, in theory, is designed to protect consumers and help them better understand critical illness products, I am not so sure that is what the working group necessarily thinks. It looks more like a smokescreen to push through detrimental change.

For the record, the working group is now entirely made up of representatives from insurance companies and does not include a single protection adviser or consumerist among them. No wise insurance brain such as that owned by Alan Lakey of Highclere Financial Services (drawing on all the exhaustive research he has done at CIExpert) or James Daley of Fairer Finance. Just the voice of profit-conscious insurers. Enough said.

In its latest triennial review, the group is seeking to push through numerous changes, but the key one relates to cancer.

It is proposing that all stage-one cancers (a cancer that is relatively small and contained within the organ it started in) should be excluded from full payment. Instead, they would be covered by a partial payment only.

The working party’s view is that many stage-one cancers are no longer "critical" because five-year survival rates are close to 100 per cent. As it said: "Examples include papillary thyroid, breast and uterine cancer." And as it suggested: "The definition of cancer might need to be changed in order to reflect this, to protect the long term viability of the product and the cover it provides to millions."

Mr Lakey is among those who is appalled by the idea of such a change. For a start, his own analysis of data pertaining to the survivability of stage-one cancers (Via CIExpert) contradicts that of the ABI working group.

It indicates that five-year survival figures for stage one-cancers in organs such as the pancreas, brain and bladder are just 26 per cent, 36 per cent and 69 per cent respectively. These figures, he says, highlight the likelihood of early death.

He said: "Consumers do not readily understand the staging system and to them cancer is cancer." Any weakening of claim wording, he concludes, would result in "irreparable damage" to the appeal of critical illness cover.

He also believes that if future critical illness policies offered this inferior form of cover for early stage cancer, it would stop advisers upgrading clients to new plans. Although superior in some aspects, these new policies would be weaker in their financial treatment of many cancer sufferers, causing advisers to hold fire.

Mr Lakey warned that if this reduction in the quality of cover goes ahead, it would "undermine consumer confidence", trigger "an increase in declined and disputed claims for cancer" and "damage the industry’s reputation".

I trust the critical illness working group, chaired by Paul Reddick (principal underwriter at Pacific Life Re), will heed Mr Lakey’s words. Otherwise it will be a case of one step forward, 99 steps back.

Jeff Prestridge is personal finance editor of the Mail on Sunday