View more on these topics

Alan Lakey: Is the ABI hindering plan design?

Alan-Lakey-MM-Peach-Byline.jpg

Back in 1999 the Association of British Insurers instigated a critical illness working party charged with the task of applying standard generic terms and injecting greater clarity into plans.

Model wordings were applied to 19 conditions in total – seven core conditions (the main conditions covered by at least 95 per cent of all plans) and 12 additional conditions (included within 75 per cent of plans).

During December 2014 the ABI issued its sixth statement of best practice, which refreshed a number of condition wordings. The revised model wordings reference 22 conditions as well as terminal illness and total and permanent disability. 

Times have moved on. When the original statement of best practice came out market leaders such as Scottish Provident covered 25 conditions, whereas today, including additional conditions, standard critical illness plans now offer a choice of 72 specific ones as well as cover for terminal illness, loss of independent existence, total and permanent disability and children’s cover.

While the ABI’s efforts are laudable, there are a number of questions deserving of an answer. For example:

  • Are the current minimum standards desirable?
  • Is there any point mandating wordings for 22 conditions when by the end of this year over 80 conditions will be in use?
  • Does the use of the disingenuous term “ABI+” actually hinder understanding among advisers?

While minimum standards can be considered good for consumers they tend to inhibit innovation and, as insurers seek to find new methods of distinguishing themselves by going beyond the minimum, this creates confusion by reintroducing a variety of claims wordings.

As is often seen with any form of central planning, the good intentions are frequently outweighed by the unintended consequences. Back in 2007 the impact of the revised model wordings was to diminish the claim potential of numerous conditions. It was argued that the changes were necessary to future-proof the product but this argument has been weakened by a subsequent drift back to pre-2007 wordings.

With model wordings being used for less than 30 per cent of the available critical conditions, are we in danger of wasting energy and resource by chasing down an impossible dream? 

There has been an upsurge in additional payment conditions (formerly known as partial payments) starting by Skandia Life in 2003 and not one of these conditions has been blessed with a model wording.

The question is: are model wordings a benefit or a hindrance to plan design and a better understanding for advisers and consumers?

Alan Lakey is director of CIExpert 

Condition ABI Model Wording? Number of Variations in use

Accidental Hospitalisation

5

Alzheimer’s Disease

Yes

Aorta Graft

Yes

7

Aplastic Anaemia

5

Bacterial Meningitis

5

Benign Brain Tumour

Yes

5

Benign Spinal Cord Tumour

3

Bladder Removal

1

Blindness

Yes

9

Cancer

Yes

12

Carcinoma in situ of the Cervix

4

Carcinoma in situ of Oesophagus

2

Carcinoma in situ of Breast

11

Carcinoma in situ of Urinary Bladder

3

Cardiac Arrest

6

Cardiomyopathy

8

Carotid Artery Stenosis

2

Central Retinal Artery Occlusion

2

Cerebral Aneurysm

7

Cerebral Arteriovenous Malformation

6

Chronic Lung Disease

6

Chronic Rheumatoid Arthritis

2

Coma

Yes

11

Coronary Angioplasty

4

Coronary By-Pass Grafts

Yes

7

Creutzfeldt Jakob Disease

5

Critical Fracture Cover

1

Crohn’s Disease (one resection)

3

Deafness

Yes

5

Dementia

2

Devic’s Disease

1

Diabetes Type  1

4

Early Stage Prostate Cancer

8

Encephalitis

2

Heart Attack

Yes

8

Heart Valve Repair/Replacement

Yes

6

HIV

Yes

3

Intensive Care (Mech Ventilation)

5

Kennedy’s Disease

Kidney Failure

Yes

2

Liver Failure

3

Lobectomy

1

Loss of Hands or Feet

Yes

6

Loss of Independent Existence

9

Loss of Speech

Yes

4

Major Organ Transplant

Yes

4

Motor Neurone Disease

Yes

4

Multiple Sclerosis

Yes

9

Multiple System Atrophy

2

Non-severe Cardiomyopathy

1

Non-malignant Pituitary Adenoma

4

Open Heart Surgery

2

Ovarian Tumour of Borderline Malignancy

3

Paralysis of Limbs

Yes

6

Parkinson’s Disease

Yes

11

Parkinson Plus Syndromes

2

Partial Loss of Hearing

1

Peripheral Vascular Disease

1

Pneumonectomy

2

Primary Pulmonary Hypertension

3

Progressive Supranuclear Palsy

7

Pulmonary Artery Replacement

2

Removal of an Eyeball

3

Severe Crohn’s Disease (two resections)

5

Severe Visual Impairment

6

Spinal Stroke

1

Stroke

Yes

7

Systemic Lupus

7

Testicular Carcinoma in situ

7

Third Degree Burns over 20% of body

Yes

8

Third Degree Burns below 20% of body

4

Traumatic Brain Injury

Yes

4

Ulcerative Colitis

4

 

Recommended

BoE

Fraud office probes BoE over liquidity auctions

The Serious Fraud Office is investigating the Bank of England over liquidity auctions it held during the financial crisis. A statement from the Bank confirms it began its own investigation, led by Lord Grabiner QC, into liquidity auctions in 2007 and 2008 and subsequently referred this to the SFO in November 2014. The Bank says: […]

UK-Currency-Money-Pound-GBP-620x413.jpg

M&G to close £81m Global Real Estate Securities fund

M&G Investments is winding-up its £81m Global Real Estate Securities fund as it is no longer commercially viable. M&G says it has been reviewing the fund after Gillian Tiltman left the firm in August last year to join Neuberger Berman. The fund managed £135m of assets on 31 July 2014 but this slumped to just […]

FCA interior 620x430
8

Design flaws: FCA second line of defence reforms risk ‘overloading’ customers

Providers under pressure to comply with the FCA’s new ‘second line of defence’ rules may end up overloading customers with generic information to meet the April deadline, experts are warning. Last week, the regulator published rules that require pension providers to give customers personalised ‘risk warnings’ based on their plans for accessing their savings. But […]

FCA logo new 620x430.jpg

FCA fines Bank of Beirut UK £2.1m

The FCA has fined the Bank of Beirut UK £2.1m and fined two approved persons for providing misleading information to the regulator. The FCA has also stopped the bank from acquiring new customers from high-risk jurisdictions for 126 days, after concerns the bank was not doing enough to address the risk it was being used […]

The FCA’s five fixes for retirement information

The Financial Conduct Authority (FCA) has started to change the way that people will be told about their pension options. In a recent market study paper, they lay out their final proposals on the information that should be delivered to people approaching retirement and how it should look and feel. During 2015, there will be […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. It was John Jospeh’s article in this very magazine set us on the road to standardisation.

    But there there is more “non-standard stuff” in the the critical illness market than there is standard stuff. So we are effectively worse off than we were before John wrote his famous article.

    Also standardisation came a a time when the industry wasn’t paying out 90+% of claims.

    Has the Statement of Best Practice run its course? What would replace it?

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com