Mortgage Strategy Protection Column - Jan 2013


In the UK CI has become a staple of financial planning for many families with around half a million people each year buying some form of cover...

Mortgage Strategy Protection Column

Critical Illness Cover – Market review

In the UK CI has become a staple of financial planning for many families with around half a million people each year buying some form of cover. In 2011, Lloyds Banking Group sold more CI than any other firm in the UK with providers such as Legal & General, Friends Life and Aviva not too far behind.

Most CI plans typically cover around 30-40 conditions, including heart attack, stroke and cancer, but can also include CJD, Encephalitis and Crohn’s disease, for example, which are perhaps less common.

Cover is typically bought alongside life insurance and therefore can be structured in pretty much the same way – level, decreasing, indexed, whole of life, family income benefit, joint or single life and so on. In fact, more than 95% of all CI policies sold in the UK include life cover.

The stand alone CI market has quite rightly been very small for a number of years, however, the newly enforced gender neutrality rules means that stand alone CI could become more competitively priced, meaning that adding life cover could see a greater price differential than before.

CI does not cover every illness and it never has. In fact, it doesn’t even cover every type of cancer. Policies cover serious and life threatening conditions as set out in the policy terms. Not every policy is the same and some providers will cover illnesses differently to others.

The industry has seen what some refer to as ‘the illness race’ over the last twenty years or so where one provider adds new conditions to out-do their competitors. More recently we have seen two other trends develop.

1. The first is severity based conditions, also known as partial payments, where the insurer pays a proportion of the overall sum assured upon diagnosis of a less serious illness.

Early forms of cancer, such as stage one breast cancer, are not covered by traditional CI policies. This is because the condition is localised, treatable and is not deemed to be life threatening. However, the public may well not always realise that cancer comes in different forms and different stages, it is still the word ‘cancer’ and that is why many people buy CI plans in the first place. More companies are now paying smaller amounts; perhaps 20-25% of the overall sum assured, where the monies can be used for replacement income, surgery or breast replacement.

Critics say partial payments add complexity and will result in complaints at claim stage if the customer doesn’t remember why they are not being paid the full amount. Whereas others point out that if the window screen cracks the insurer doesn’t pay for a new car. Likewise if your washing machine floods the kitchen the insurance won’t pay for a new house.

2. The other trend could perhaps be referred to as The Illness Race - Part II. While insurers continue to add new conditions we are also seeing the ‘ABI+’ race where providers seek to compete on the actual definitions used for a condition as well as the number of conditions covered.

The term ABI+ which refers to the number of conditions offered by a company which have a better definition for the customer than the minimum ABI baseline i.e. definitions (which in theory at least) are more likely to pay out.

Overall this is probably a good thing – but without being medical experts it can be quite tricky to determine just how much more likely a claim will be.

News round-up

• Aviva has begun airing its latest national TV ad campaign which focuses on the key life stages when consumers can benefit from protection and retirement planning. The 60 second “Cradle Talk” adverts were first broadcast on Boxing Day and will continue to run throughout the year again featuring Paul Whitehouse.
• IFA firm Plan Money is launching a non-advised proposition, Plan Direct, which will refer clients to comparison website for protection products. The Colchester based adviser rebranded last year from CBK to Plan Money.
• Insurers paid out 83% of income protection claims in 2011, according to new figures from the Association of British Insurers. While many insurers are publishing rates above 95% it is likely that some insurers are notably lower.
• iPipeline’s intermediary quote portal Assureweb has reported a significant increase in adviser quote volumes in the build up to G-day with a 68% increase in annuity activity, 72% for whole of life and 17% for term assurance. The firm also received more new applications on the day before G-day than any other single day.

Tip of the month – Use ‘so-called’ complexity to your advantage

Over the years many advisers I meet ask why protection products have to be so complicated. ‘Why can’t they all the same so it’s easier to understand and easier to sell?’ The general response to this is to point out that if all products were ‘simple’ and exactly the same, that there isn’t much use for an adviser in the first place – and if there were the adviser’s role would be little more than that of a comparison site. Instead, take a bit of time to understand how products and providers vary and use this to your advantage because this is how advisers add value, improve their advice and persistency and most important this is how to differentiate from any non-advising, price sensitive competitors. And if you don’t have time – perhaps work alongside someone who does.

Kevin Carr is Chief Executive of Protection Review and Managing Director of Kevin Carr Consulting.
article first appeared in Mortgage Strategy