Criticism Vitality's new framework not fit enough

Drewberry Insurance, Regency Health and Specialists4Protection have applauded Vitality's work in creating the framework but said its introduction at the end of 2016 was a "missed opportunity" to resolve some issues over claims.

According to Brian Walters, principal of Cheltenham-based health insurance brokers Regency Health: "It's laudable that Vitality has attempted to address what has become a problematic issue for PMI customers, but this is a missed opportunity."

He said the new framework, which aims to ensure a fairer, more intuitive and more transparent pricing approach for VitalityHealth members, has "failed to adequately address the issue of family members impacting upon each other's premiums, which all other insurers have addressed."

According to Greg Levine, director of intermediary at Vitality, there has been a change, in that previously pricing was amended per policy, not per life. 

It is important for us to work with advisers when they raise points and the spirit will be to address these issues as best we can. Greg Levine

But the new FIT model has moved away from this and now it sets different thresholds, depending on whether the claim is for a family or an individual. For example, for a small claim, the individual level is £250 and the family threshold is £375. 

He said these thresholds would address the issue of family members impacting on each others' premiums.

While the new framework will result in less severe claims loadings on individuals, Mr Walters has also warned claimants could continue to be penalised year after year, which is in contrast to a traditional no-claims discount (NCD) structure where the member will eventually bottom out.

There is also no option to protect against a claims loading, he said. As Vitality has rolled out this new FIT framework on existing members, Mr Walters is concerned that some claimants who have "already bottomed out on their NCD scale will now see further claims-related increases."

Tom Conner, director at Drewberry, said although no one ever likes the concept of their premiums going up, from car insurance people at least understand what a no-claims discount is, and there is safety in knowing that it has a bottom.

But he said: "The new Vitality method doesn’t appear to have this.

"It is true the exact mechanics behind how moving down no-claims discount levels impacts premiums isn’t particularly clear, but the overall concept is at least understood. This would suggest that evolution rather than revolution could be the answer."

Despite this, Mr Conner said Vitality had "done well" in setting its proposition apart in the market by providing alternatives to the status quo.

Advisers pointed out that Vitality's current policy wording states: ''You will never pay more than the base rate, no matter how many claims we pay."

But Vitality is in the process of amending its documents for the new-look FIT framework. Mr Levine said: "We will be changing that wording. Effectively any new business done now will be on the new FIT framework, and there will new wording appropriate to this structure."

Moreover, Mr Levine explained that less than 5 per cent of Vitality's book has bottomed out in terms of the full no-claims discounts, and the majority of members actively try to improve their health and status so they are less likely to claim.

He said: "We want to make sure there are fair premiums for everyone. You have to have a fair charging model, taking account of the less than 5 per cent of the book who will be perpetual claimers. There should be a level of increase that is proportionate to the level of claims they make, otherwise it is not fair on those who have never claimed."

Mr Levine said that if people who never claim see high increases as a result of a few individuals making continuous claims, then it is not a shared value model, it only annoys individuals and encourages shopping around or even people disengaging with the protection process.

Paul Litster, head of protection at Specialists4Protection, said: "We have spoken to a number of advisers who, although they like the Vitality product, think it is rather complex.

"This underlines the fact clients' expectations are that the experts should be left to understand how it works and discount or recommend based on this depth of understanding. The danger is that simply selling on simplicity and price will drive prospects to comparison web sites.‎"

But he added that Vitality's transparency of rating factors in its new FIT framework should be "applauded as refreshing in a marketplace where each insurer will have a set of renewal criteria which are often cloaked in confidentiality".

Vitality has been made aware of these reservations, and according to Mr Levine: "We have spoken to quite a few advisers already in the process and we have an advisory board meeting in a few weeks’ time.

"We work closely with advisers and our customers, and we will make tweaks to optimise the model. There will be developments over time. It is important for us to work with advisers when they raise points and the spirit will be to address these issues as best we can.

"One principle which will not change is that Vitality will be transparent with our renewal pricing as a result of our new model."

simoney.kyriakou@ft.com