Nearly £1.2bn was paid out in critical illness insurance claims in 2017, helping more than 15,000 families recover financially after a diagnosis of a serious condition.
Although the product was a lifeline for these policyholders, many individuals are still failing to take out cover.
Figures from Swiss Re’s Term and Health Watch 2018 show that more than 500,000 policies were sold in 2017, taking sales volumes back to the levels last seen in 2012. However, these levels were dwarfed by sales of life insurance, where term-only policies topped 1m.
Public perception
Consumers’ perception of claims is one of the key reasons why they are shunning cover. Research by Aegon found that just eight per cent of consumers believed the protection industry paid out more than 90 per cent of claims, in spite of figures from the Association of British Insurers showing that 97.8 per cent of protection product claims were paid.
Interestingly, while respondents correctly identified the top two reasons claims were declined – non-disclosure and claiming for something that was not covered by the policy – the third most common reason indicates where insurers may need to focus their attention. The ABI found that many people did not trust insurers to pay a claim, believing they would find loopholes to avoid making a payment.
These findings do not surprise Jacqueline Kerwood, claims philosophy manager at Aviva. “It is important to publish claims statistics but the figures are only really picked up by the trade media: consumers do not see them,” she says. “As an industry we suffer from being tainted by consumers’ negative experiences of insurance.”
To change these perceptions, Ms Kerwood would like to see more publicity around why claims are declined. Given that most claims are rejected due to non-disclosure or because the condition is not covered, this would help consumers to understand how cover works, as well as changing their perceptions of insurers.
“If we explained why we had declined some claims, the man on the street would agree that it is reasonable,” she adds.
Positive publicity
Insurers would also like to see more positive stories coming out of the statistics. “It only takes one negative story for it to reflect badly on the industry as a whole,” says Chris McNab, protection proposition director at LV. “We need to put positive messages out there more: there are plenty of life-changing stories about protection claims.”
To achieve this, Mr McNab would like to see claims statistics published more frequently to help them gain a higher profile, but also a campaign such as the Seven Families initiative for critical illness insurance or protection more widely. This campaign originally ran from November 2014 to July 2016, with the families’ stories featuring in the national press.
Unlike the tales that normally make the nationals featuring people having to fight to secure a protection pay out, the Seven Families initiative drew attention to the financial and rehabilitation support that income protection insurers provide.
As an example, take the Norbert family where Paul had been forced to give up his job as a driving instructor as a result of his bipolar disorder. Through the campaign he was helped to manage his condition, study for an Open University degree and return to his job.
Although other influences – for instance the push behind more affordable, limited term policies – will have contributed to an increase in sales, anecdotally the programme has proved a positive influence, too. For example, figures from Swiss Re’s Term and Health Watch 2018 show that while 96,889 income protection policies were sold in 2014, this has risen steadily to 121,084 in 2017.
Medical confusion
The insurance industry is also looking at how it can make products more compelling for consumers. Katya MacLean, chief operating officer at Guardian Financial Services, is not surprised by the disconnect between the actual and perceived number of claims paid. “You can tell the consumer that you pay more than 90 per cent of claims, but this is fairly meaningless when they are taking out a policy that they do not fully understand,” she says.
“If someone is a bit nervous about the insurance industry’s reputation for paying claims, looking at the complex medical language in the definitions will do little to change their opinion.”
Ironically, in a bid to protect consumers by ensuring as much certainty as possible around claims eligibility, insurers’ definitions have become increasingly wordy. Although designed to make it easier to compare products, the ABI’s model wording for cancer demonstrates this perfectly. It runs to more than 150 words, including terminology such as ‘Gleason score’, ‘Binet Stage A’ and ‘TNM classification T2N0M0’.
List lethargy
Adding further consumer confusion is the industry’s current conditions race, which is seeing more and more full and partial payments being added to policies. To an insurer or adviser, a longer list may appear more generous but, from a consumer perspective, working out whether it is better to have a partial payment for low-grade prostate cancer or for Crohn’s disease can be bewildering.
At LV, Mr McNab says that any enhanced payments are designed with the consumer in mind. “Products are moving towards more severity-based cover to give customers more comprehensive financial protection,” he explains.
“If someone contracts a neurological condition while they are young, we would make an enhanced payment in recognition of the financial impact it would have on them.”
LV offers enhanced payments for 16 definitions. These include six neurological conditions when diagnosed before the age of 45, where 150 per cent of the sum insured is paid, and 10 claims that arise as a result of an accident – for instance blindness, third-degree burns and traumatic brain injury – where 200 per cent of the sum insured is paid.
Clean slate
Having only launched last year, Guardian has had the luxury of starting from scratch with its product design. This has resulted in simpler definitions that are easier for consumers to understand.
As an example, rather than insist on medical evidence to enable it to assess severity in the event of a heart attack, the company only requires a consultant neurologist to say the policyholder has suffered a heart attack for it to pay out. Although this is unlikely to affect the number of claims paid, Ms MacLean says it is fairer for the consumer.
“The doctor should decide whether the individual has had a heart attack, not the insurance company,” she says. “They do not need to wait for the medical evidence to go to the insurer before they know they will receive a payment.”
In other instances, Guardian’s definitions will mean more claims are paid. For instance, while most insurers require evidence of multiple sclerosis when a claim is assessed, it only requires a neurologist’s confirmation that there have been symptoms due to multiple sclerosis. This is a positive development for claimants as symptoms can come and go, especially in the early stages of the condition.
Alongside consumer-friendly definitions, Guardian’s policyholders can also benefit from cover upgrades, with some automatically added and others subject to underwriting. “We wanted to avoid the situation where cancelling an existing policy was the only option for policyholders who wanted the improvements,” Ms MacLean explains.
“I expect the industry will follow. It is becoming increasingly unacceptable to differentiate between new and existing customers.”
Whether through more positive publicity, awareness campaigns or product design improvements, the critical illness insurance industry must change consumers’ perceptions of its claims track record. By winning this trust, the product will reach its true potential, and individuals and families will have access to the protection they need and value.
