The individual critical illness market is the fastest growth area in financial services in terms of product development, leading many insurers to think the sky is the limit. But are there too many schemes on the market and is there a need for any more new players?
Critical illness was practically unknown in this country until 12 years ago, when it was introduced into the UK by Cannon Lincoln in 1986. There are now around 60 companies offering over 200 policies.
The booming growth rates are generally attributed to a number of factors. These include the attractiveness of a tax free lump payment and the advantage of a cash benefit for those who recover and want to make the most of their money.
Individual critical illness is also thought to be a relatively easy plan to promote, particularly compared to income protection. Promotional literature commonly cites the likelihood of contracting a critical illness and the fact there is a higher risk of developing a serious illness than of dying before the age of 65. For example, one of Sun Life’s brochures emphasises the reasons for considering buying a critical illness policy: “You may not think you need cover, however a critical illness can happen to anyone at any time irrespective of age or sex. You may know someone who has already suffered a critical illness.”
It seems the days of people rejecting the notion of falling sick are long gone. There is a genuine escalating awareness of the reality of contracting a serious disease and it is the IFA’s job to make their client aware of the benefits of a critical illness plan. But while intermediaries need to be aware of the intricacies of the products currently available, they must also keep up to date with the new players entering the market.
The latest provider to test the market is Colonial. The Australian-owned insurer has launched a serious illness plan, this country’s first joint life and serious illness scheme. The terms of the contract allow the customer to buy back life assurance following the payment of critical illness policy, if they live for two years from the date of the claim.
Colonial’s national key accounts manager, Bob Levy, says the introduction of the scheme in Britain relates to recommendations by the Office of Fair Trading in its 1996 Health Insurance report. It stated: “We recommend that the CII industry, perhaps through the ABI, should recognise and address the problem of the loss of life-cover benefits for dependents when a critical illness benefit is triggered within an accelerated policy.”
It continued: “One solution might be to provide the option of a higher premium to buy back life cover, as in Australia. But, in any event, everyone taking out a CII policy should be made completely aware of the basis on which cover is provided, in particular the fact that payment for a critical illness will reduce or even eliminate the benefits payable at death.”
The priority for Colonial is ensuring policy holders have a lump sum at their disposal and money for surviving relatives. The bottom line is to make sure people get the cover they will require to support them through life and death.
Levy is sure the individual critical illness sector will continue to grow and believes the market needs additional entrants: “The cake is big enough for us all.”
But the continuing proliferation of new products means that not everyone shares his views. Steve Burgess, Sun Life’s business development manager, refutes the need for any more new players, although he concedes competition always benefits the market.
However, he is in favour of a whole of life approach to providing cover, emphasising attention should be paid to people’s requirements during their lifetime: “People’s needs change radically throughout their lives. Protection needs to be regularly reviewed.”
Sun Life offers Multiplan and Lifecare, which enables clients to take out up to four policies, independently of each other. The flexible nature of the scheme lets the IFA tailor the product to the customer’s personal wants at the outset.
Burgess believes the best cover can only be obtained through expert and thorough advice, particularly in relation to the latest breed of flexible products.
But he would like to see greater clarity surrounding the numerous options which are currently open to the customer: “I’d like to see more standardisation of peripheral critical illness definitions. There is false competition when companies are competing on the number of illnesses covered, it’s bad for the market.
“Companies should be focused on things like service delivery and claims counselling. It frustrates me that the focus is on marketing the number of diseases covered rather than the quality of the contract.”
Tim Cobb, marketing manager-life at Norwich Union, agrees meeting the need for comprehensive cover is crucial to the critical illness market. He laments the large number of contracts and definitions which he believes may distract potential customers, adding that the vast majority of claims are centred on cancer, stroke and heart problems.
He explains: “Many people will be put off if the policy looks complicated. But, it is a double-edged sword, clients want simple things in their policy but sometimes prefer it if a certain company has a `tweak’ to its product. Perhaps buyback is one of the things that people prefer.”
He adds that Norwich Union did consider introducing a buy back option into its schemes but rejected the idea as it was not sure the scheme met customer needs.
The alternative way for an IFA to safeguard the customer’s term assurance after a critical illness payout is to sell the two products separately. For example, an intermediary could recommend a critical illness policy from Norwich Union and a life policy from General Accident.
Cobb believes a number of products are already available to meet this need, and wonders if adding new features merely creates unnecessary complications for the IFA: “It’s about looking for a marketing edge, maybe Colonial has found it, maybe it hasn’t.”
But despite uncertainty over the long term benefits of such a wide range of schemes and the wealth of critical illness definitions, the future of individual critical illness looks extremely positive. Awareness of the market and the advantages of the plans available appear to be on the increase.
But Permanent Insurance’s corporate communications manager, Avenda Burnell Walsh, believes that difficult times lie ahead. She says the UK market must take heed of worrying progress in the USA.
“Some operations in the States, like a triple bypass, are being carried out for cosmetic purposes, a way of getting a new body,” she says. “If surgery is changing, are people going to go to surgeons and ask for this form of brush up?”
And she warns: “We may see insurers becoming more cautious about what they cover in the future. We may be open to future claims for this if we carry on the way we are going.
“Critical illness policies may have to change.”