An obsession with claims pay-out statistics in the individual critical illness (CI) arena appears to have overtaken the “conditions race” as the primary competitive battleground. A number of players had weighed in with 93% but even these can no longer rest on their laurels now that Legal & General has usurped poll position, declaring a 93.6% pay-out rate for 2009 this March.
The news that nine out of 10 claims are now paid on average industry-wide is of course more than welcome for a field that has been consistently vilified in the media for turning down “one in five”. But there remains considerable inconsistency in the methods used by different insurers in calculating their figures. Some companies, for example, include every single claims application while others weed out those deemed time wasters. Comparisons are not therefore always being made on a like-for-like basis.
Furthermore, while the field certainly deserves a pat on the back for the way it has combated non-disclosure problems via a range of well documented improvements, there still remains considerable doubt as to whether news of this progress has actually filtered through to the consumer.
Henrietta Oxlade, an IFA with central London-based Bond Wealth Management, says: “Potential clients still have a noticeably bad perception of CI cover because of its cost and the bad press it has received, whereas five years ago they would have taken out the cover as a matter of course. All the work on disclosure hasn’t got through yet and, although it will eventually, it could take time. Younger clients are more likely to take out CI cover as it costs them less but older ones are generally opting only for life cover because they are tightening their belts.”
Mark Banfield, senior partner at AFP Partnership, a specialist IFA based in Maidenhead in Berkshire, says: “Consumers to some extent have reservations, and a basic mistrust is still evident from time to time. Nothing with CI cover is black and white any more, so we need a cheap and cheerful contract that pays out on around 14 or 15 life threatening conditions and on nothing else. I don’t feel that the answer is to go out and say we’re paying 90% of claims because the average consumer’s reaction tends to be to wonder what happens to the other 10%. We need to produce a lot of positive stories about how the product helps people and about how it should fit in with a balanced portfolio of protection needs.”
NO IMPROVING SALES TREND
CI sales have certainly showed no signs of rocketing just yet. According to Swiss Re’s Term & Health Watch 2009, they fell by 4.7% during 2008 to 511,045 and it seems unlikely that Swiss Re’s figures for 2009 will show any monumental turnaround when they are released shortly. According to the Association of British Insurers (ABI), which only measures standalone CI cover sales, new business patterns remained unchanged during the second, third and fourth quarters of 2009.
There is of course an argument that all the work in combating non-disclosure has already had a positive impact by preventing sales from being far worse still, and those who try to see the glass as half full find some consolation in the fact that sales seem to be becoming less dependant on the mortgage market. According to Swiss Re’s Term & Health Watch 2009, non-mortgage related CI sales rose by 17.5% during 2008.
Ben Heffer, author of Defaqto’s 2010 Guide To Critical Illness, says: “As much as 50% of CI sales are mortgage-related and the close alignment of CI sales with the mortgage market has been a double edged sword. Packaging CI cover with life assurance has resulted in more people having some CI cover but, on the other hand, the limited time available for advice and the lack of affordability at that time may have resulted in unsuitable products being sold. Now is the time to divorce protection from mortgage sales and establish protection portfolios for clients based on all their protection needs, not just their mortgage cover.”
Legal & General reports that its CI cover sales reduced by around 5% during 2009 and Aviva refers to a corresponding reduction of “a little over 10%”.
Richard Verdin, protection director at Aviva, says: “When you consider that the mortgage market has also been in a pretty terrible state the sales levels we have achieved have actually been quite pleasing, as they could have fallen off the edge of a cliff. The fact that it doesn’t make sense for advisers to rebroke CI policies anymore except in the most exceptional circumstances also explains why sales are substantially lower than in 2003.”
A few players have, however, managed to buck the trend. Friends Provident saw level term CI cover increase by 22% during 2009 and decreasing term CI cover rise by 61%. It reports that recent months have seen a further slight improvement.
Zurich Assurance, which is celebrating the extraordinary honour of seeing a satisfied claimant naming their horse Zurich Bentley, reports IFA business increases during 2009 of 65% for accelerated term CI cover, 9% for standalone CI cover and 104% for decreasing term CI cover. The fact that it has run a number of training sessions over the past 12 months is considered to have been an important factor in increasing awareness of its products.
A QUESTION OF SEVERITY
PruProtect has experienced a 400% increase in policies in force during 2009 along with a similar upward trend during the last few months. Pricing is now competitive with some standard CI cover and research by the company’s reinsurer Hannover Re Life UK has shown that PruProtect policies have a 24% improved likelihood of making a pay-out than a standard CI policy. It would therefore be no great surprise if PruProtect, which is already receiving business from nearly 5,000 intermediaries, achieves its aim of becoming a market leading player in terms of volume within the next three or four years.
Deepak Jobanputra, actuarial and product director at PruProtect, says: “We’ve been on a quite incredible journey over the last year to 18 months and we seriously expect to rival even the sales levels of low cost players like Legal & General and Aviva. People understand that, like with car insurance, you can claim many times on this product. A trend towards severity-based riders is actually endorsing us and some other providers are rumoured to be looking to follow us by launching severity-based products.”
Jennifer Gilchrist, senior product development manager at Scottish Provident, does little to dampen speculation that Scottish Provident is the potential copycat-in-chief by volunteering that: “We are looking at the future of CI cover. It’s all very well tweaking this and that but it won’t do anything to close the protection gap. So we are looking at the bigger picture in the future.”
However, Mike Taylor, chief underwriter at AXA Protection, is not expecting any other insurer to follow PruProtect’s example and remains far from convinced that PruProtect will itself prove capable of cutting the mustard in the mass market.
Taylor says: “I don’t see anyone following PruProtect as the market is moving to simplified products and is currently being driven by getting business on the books as simply and quickly as possible. So, although PruProtect has a good product, it will always be hard for it to achieve mass volume sales. Young people nowadays increasingly want to compare online and I can’t see PruProtect ever really succeeding there. Its format is too complex to take advantage of growth in the aggregator space, which is looking for good and simple products.”
A trend towards including severity-based riders or partial payment facilities on otherwise standard CI cover is, however, catching on like wildfire. AXA, Bupa, Fortis, progress from Royal Liver and Skandia have already gone down this route.
A clear bandwagon is also developing in the direction of offering discounts to policyholders who have exclusions for cancer and, also in some cases, multiple sclerosis. Legal & General, Bupa, Zurich Assurance, Fortis, LV= and AXA are among those to have taken the plunge and other players are likely to follow. Friends Provident, which is unusual in excluding only the particular type of cancer a policyholder has suffered from as opposed to excluding cancer as a whole, does not see the need to follow suit. But Bright Grey, which takes a similar approach to Friends Provident towards cancer exclusions, is currently looking at the best way of also introducing a discount.
Of possibly even greater significance, has been a trend in the direction of improved claims services. Many companies, for example, now provide claimants with a dedicated claims handler from day one.
Sally-Anne Etienne, UK head of life and health claims at Swiss Re, says: “There has been a real improvement in the industry in terms of claims assessment by telephone and explaining what is covered by the policy. This is a real success story and I can see investment into claims processing continuing. We should make much more of the fact that the industry is talking to claimants at the front end of claims.”
AEGON has been among the most notable innovators in this respect, having conducted a successful tele-claims pilot in the final quarter of 2009. Its new service, launched this March, uses in-house claims assessors to talk claimants through the claims journey, discussing and explaining policy definitions and answering customer queries over the phone. This ensures the correct information is obtained, allowing the claim to be submitted quicker.
Matt Rann, head of underwriting and claims at AEGON, says: “I had found the claims process very difficult to go through when I suffered a critical illness myself and claimed on another insurer’s policy. There were lots of inefficiencies. The new system is so much better than a piece of paper coming through the door and the personal touch means so much. It continues all the way through the claim and avoids all the big gaps of waiting around.
“There is a huge difference from a third party service like RED ARC because their staff don’t know about the policy details but our claims assessors are trained in both insurance and medical matters. The pilot showed fantastic customer reaction and the new system is actually costing us less. Our average claim now takes five weeks, compared to 10 weeks before the pilot.”
Although it is fashionable to suggest otherwise, the “conditions race” is also still very much alive and kicking and, according to Defaqto, the average CI policy in 2009 had 34 conditions, compared to 27 in 2005. The difference between now and a couple of years ago, however, is that insurers who reveal that they have added new conditions frequently accompany the news with a decidedly paranoid disclaimer insisting that they are not playing a numbers game but only adding covers that are genuinely useful to policyholders.
Aviva, which added six new conditions in October 2009, AXA, which added three new ones in November 2009, and Zurich Assurance, which added six new ones in August 2009, all keenly volunteer such innocence.
Peter Hamilton, protection management director at Zurich Assurance, also notes an industry-wide trend for claims experience on standalone CI cover being much worse than on accelerated cover, making it very difficult to price the former as cheaply as the latter. For this reason Zurich no longer offers guaranteed premium rates on standalone cover.
Re-pricing generally is also threatening to become a thorny issue, with LV= being particularly conspicuous in slashing its rates this March. Ninety-nine per cent of its guaranteed accelerated CI cover premiums were reduced, with an average reduction of 6.7%, and 82% of its reviewable accelerated CI premiums were reduced, with an average reduction of 4.3%.
Such activity is not yet causing too many sleepless nights within the reinsurance community but the odd murmur of foreboding has started to become audible.
Andy Milburn, head of marketing at Munich Re, says: “We cannot continue to play the price game forever and at some point in the next decade it will possibly come to a halt. We should learn from what happened during the credit crunch when lenders kept on granting credit because, in a similar way, we can’t continue to look for cheaper premiums. We are not panicking in the sense that we are stepping in but we are looking to put out a message with regard to the importance of thinking about the long-term consequences. If we are building a marketplace based 95% on price as a purchase model what will happen if we run out of opportunities to reduce premiums?”
Dream on, Milburn! As the banks themselves don’t appear to have learned too much from a credit crunch that they actually caused, to expect CI insurers to learn from another industry’s mistakes doesn’t seem too realistic. It would therefore be no surprise if this particular saga eventually ends in tears.
TOTAL AND PERMANENT PROBLEM?
ABI proposals to replace total permanent disability (TPD) with a series of new CI conditions relating to the more common types of TPD claims have been scrapped following consideration of the responses to the organisation’s consultation on the subject, which closed in September 2009. TPD, which has a declined claims rate of 55%, will now be maintained and the focus will switch to explaining it more clearly.
Nick Kirwan, assistant director, health and protection at the ABI, says: “We are just starting consumer research on draft wordings to see how clear and sensible they are. The proposal we originally put forward internally was extremely radical and opinion on it was quite divided but it was useful from the point of view of starting the debate. At a workshop last November, to which everyone who had replied to the consultation was invited, it was decided that the main issue was education, so we are focusing on being clear about the current definitions as opposed to getting new ones. But we may consult on the detail of the wording again.”
The ABI does not have the power simply to scrap TPD, which some experts feel would be the best solution in an ideal world as it is questionable how comfortably it has ever sat on a CI policy. But another plausible potential solution could be to replace TPD with Fortis’ temporary disability cover – which pays an income if the policyholder is unable to work due to temporary disability or illness.
Ryan Griffin, spokesperson for Fortis Life, says: “I don’t understand why the ABI doesn’t accept it and we have been talking to it on the subject since last September. There are, however, some question-marks about whether companies can implement it, as their underwriting might not be flexible enough to do so.”
The ABI’s Kirwan comments: “There is nothing to stop other insurers following Fortis and calling its innovation something other than TPD.”
OTHER INDUSTRY NEWS
Following a successful pilot in December 2009 and January 2010, Aviva intends to launch an Adviser Underwriting Academy – which aims to provide advisers with the confidence they need to guide people through the underwriting process if they don’t use teleunderwriting.
Aviva’s Richard Verdin says: “I would guess that 85% to 90% of the market still wants to deal with the full application process and the issue we have is that intermediaries could understand the financial implications of the product but not the non-financial implications. So we think it is vital that CI cover is explained properly, and customers need advisers who have had some training in the non-financial aspects. None of the industry qualifications currently cover underwriting aspects in enough detail to answer those complicated questions around personal and family medical history.”
Bright Grey was notable for launching an internet product in March 2009 which only covered the 23 basic ABI defined conditions and did not cover TPD. Aimed at generalist intermediaries and consumers via online intermediaries and comparison sites, it introduced a very keen pricing structure. But, one year on, it clearly hasn’t broken any sales records.
Roger Edwards, proposition director for Bright Grey, says: “We haven’t experienced a massive wave of success in the CI space and this may be largely a branding issue because there is no IFA online to explain who we are. So we have to look at various ways of overcoming the problem, perhaps by including more links to our Royal London parent. There has been plenty of clicking onto the website but the conversion rate is much lower than for straight life cover.”
Bupa is running a whole series of educational trade sessions with network partners and has been working with the screening centres in its health and wellness division, asking those requiring a medical examination to attend these instead of a GP. It also invites us to watch this space for a new product launch this summer. Steve Casey, head of product development at Bupa Individual Protection, says: “If Defaqto had six stars I think this product would get it.”
Scottish Provident has seen a fourfold increase during the last year in CI cover that pays an income as opposed to a lump sum and has been promoting the approach as a way of coping with the credit crunch. It also reports huge success with its Life Matrix tool, which provides IFAs with help with servicing existing protection clients rather than looking for new business.
Skandia launched a new VIP service in November 2009 for advisers writing CI cases with sums assured of £1m or more. It was designed to put cover in place as quickly as possible while taking up as little as possible of clients’ time. Benefits to the client include an appointment at a private hospital, a chauffeur driven car to transport them to and from an appointment and a medical report in plain English provided by a Harley Street doctor.