Few areas of financial services have been immune to the arrival of stakeholder pensions. Their low charges mean profits are slim and, as a result, the last year has seen many insurers looking for alternatives to replace the lost revenue. Critical illness (CI), like many of the protection products, has proved to be a popular option.
Four new CI products were launched in the last year. Friends Provident and Legal & General revamped their products, moving to the more flexible, menu-based approach.
And Skandia Life also revised its product range with the launch of Skandia Protect, its first term assurance-based CI product, in January. Again this is menu-based but incorporates a number of features that have won it much acclaim. Brian Lentz, IFA principal at Portfolio Insurance Consultancy, says: “There isn’t anything currently on the market quite like it. It has a rolling term option which gives it the benefit of a whole-of-life policy but with the certainty of premiums for ten years.”
Skandia’s senior marketing manager for life and investment marketing Lynda Cox adds: “We’ve combined the transparency and premium guarantees of term assurance with the insurability benefit of whole of life. And, with the ability to change criteria, this makes it ideal for people who don’t know what their cover needs will be in the future.”
Additionally, a cover reinstatement option, which Lentz describes as “better than anything else on the market”, a serious accident benefit and a service which gives policyholders access to a database of the best doctors in the UK have raised the ante in product design.
The fourth new product came from a new market entrant, Scottish Equitable, using the experience of the underwriting team it acquired when it bought Guardian Financial Services. It has set up an underwriting hotline for IFAs and also publishes a regular newsletter, Underwriting Today, to help raise understanding of industry issues.
Scottish Equitable has big plans for its move into protection. Lesley McPherson, the public affairs manager for its parent company Aegon UK, explains: “When we launched we anticipated we would have a five per cent market share by the end of 2001. However, the response so far has gone absolutely ballistic and we have revised this figure to ten per cent.”
The imminent arrival of stakeholder pensions certainly has much to do with all this activity. Similarly, the decline in sales of endowment mortgages has boosted sales as home buyers have had to buy separate protection policies. Standardised definitions, which were introduced just over a year ago by the Association of British Insurers (ABI), have also helped to make products more easily comparable.
However, cynics might suggest that one reason for the increased activity among CI insurers may be, with Scottish Provident in the middle of a demutualisation and £2.6bn sale to Abbey National, an opportunity to take some of its market share.
However, despite all the potential distraction, Scottish Provident has had a far from quiet year in terms of product sales. Ian Smart, marketing technical support manager at Scottish Provident explains: “In 2000, our sales of CI increased by 50 per cent. Given that there have been new entrants to the market, this does suggest the market as a whole is growing.”
However, not everything in the CI market has been so positive. One of the issues the ABI working party is tackling is the effect that national screening for prostate cancer could have on the cost of CI cover.
Paul Cowman, the solution protection manager at Pearl, explains: “Detecting prostate cancer early increases the likelihood of it being treated, which will also increase the number of claims under CI. I’ve heard suggestions that premiums may have to increase by as much as 30 to 40 per cent.”
Alternatively, the industry may be compelled to change the definition for prostate cancer or simply exclude it from cover.
But not everyone is allowing the potential price hikes to overly concern them. Cox explains: “It’s important not to get too hung up on things that make up a premium. They’re based on historics and much can change. For example, claims for multiple sclerosis are much higher than anticipated, while Aids hasn’t turned out to be anything like as horrific as expected.”
How national screening affects the CI market remains to be seen. However, one thing is certain: with a larger market and more players the need to have a competitive edge will ensure that product design and pricing departments are kept busy.