When it was introduced to the UK in the late 1980s critical illness (CI) insurance, or dread disease as it was then, was simple. If you were diagnosed as suffering from a small list of conditions you were given tax-free cash. It was usually bolted on to a life insurance policy and limited in the number of conditions it covered and the amount of money it would pay out – around £50,000.
In today’s market consumers buy CI for the same reasons as before. Should the worst happen they will make a claim and get the money their premiums have been paying for. Their image of the insurance is very straightforward, but their policy might not be.
As the list of conditions insured and the levels of cover have increased, so has the price. But have we gone too far? Was the concept of dread disease that wrong?
Perhaps it would be better to take last decade’s claims experience to more accurately price the core diseases rather than guessing what premium and benefit is appropriate for someone spraining their ankle?
Advances in medical technology will continue to blur the lines between what is and what is not a critical life-threatening condition, which will inevitably multiply the number of angry claimants and negative coverage. This presents a catch-22 situation for insurers.
Illnesses have to be defined, but if certain types of cancer become curable and therefore not critical, policyholders will become more confused. If, for instance, a cancer claim is declined, the insurer quite rightly refers to the terms of the policy, but in the mind of a claimant cancer is cancer and neither they nor the press is interested in what the policy says.
The challenge is to redefine the product to closely fit the customer’s real financial needs, yet cope with developing medical technology. Once these issues are addressed CI can be used to create what it was intended to – peace of mind at an affordable price.