The critical illness template is ‘broken’

 

Industry protection expert, Alan Lakey believes the UK critical illness market is ‘broken’.

In an article first published in Cover magazine Alan Lakey outlines his opinions on UK critical illness policies and where insurers need a re-think.

                                                                      Alan Lakey, Director, CIExpert

“So start with the premise that any condition which results in an agreed outcome deserves to be paid.

Many commentators have lamented the lack of simplicity within critical illness cover (CIC) plans whereas others argue that the plan design should encompass an element of income protection (IP) to form a hybrid plan.

The drawback of a hybrid plan is that whilst everybody – health permitting – is eligible for CIC there are many people unable to effect an IP plan due to cover at work or an income that is not provable in the traditional sense.

What is simplicity anyway? Is it a three-condition plan, or could it be one that has reduced the number of words within the definition and veered away from obscure medical terms?

Broken template

I believe the problem is with the template, the critical illness template that has been in place since 1983 when the first plan crossed over from South Africa. The template is most definitely broken because it guarantees that claims that should be paid are contractually declined.

Additionally, the reliance on medical terminology ensures that most consumers will not understand them and this failure to communicate naturally breeds mistrust.

There is an overwhelming urge amongst all insurers to list 70 or more condition names. This seemingly relentless process has taken us to the stage where there are now 130 full or additional payment conditions and 16 child-specific conditions. This incessant accumulation of condition names is epitomised by the progress of Legal & General as the table below indicates.


Obviously, covering additional illnesses and operations is not a bad thing. My contention is that the methodology being used is failing both consumers and advisers. Advisers have to use systems like CIExpert in order to understand the conditions and their relative values when it could all be so much easier.

Agreed outcome

What is the answer? I believe that we should start from the premise that any condition which results in an agreed outcome deserves to be paid. If it is reasonable to expect a permanent negative outcome such as loss of motor function to result in a claim then does it matter whether that condition is called multiple sclerosis, Devic’s disease, transverse myelitis or something else?

There are numerous permanently debilitating conditions which are not named and therefore are not covered. It is unrealistic to expect a plan to list 500 potential conditions because the list will still not be exhaustive and of course nobody will read it. Nor is it realistic to assume that total permanent disability (TPD) will solve the problem when activities of daily living (ADL) based versions are next to useless and the suited occupation may not result in a successful claim.

How much simpler it could be if we used outcome-based headings, such as ‘permanent loss of motor function’, rather than a list of neurological conditions. Beside the headline name we could explain: ‘a condition such as MS, progressive supranuclear palsy, Devic’s disease or one of numerous other conditions creating the insured outcome’.

How about ‘Essential Heart Operation’? This would incorporate aorta graft, heart valve repair and replacement, open-heart and structural-heart surgery and coronary bypass surgery. Coronary angioplasty can be excluded or retained as an additional payment condition.

Naturally such a sea change is only for the brave. Most insurers are too scared of being out on a limb and prefer to stick close to their brethren but Vitality and Guardian have both shown that major changes can be achieved. So who is brave enough?

 

The article including Alan Lakey’s comments on critical Illness policies was first published in Cover magazine. You can read the original article here.

Alan Lakey is a director at CIExpert, an advisory firm that aims to bring clarity to the CI market.

 
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