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Appliance of science

Critical-illness insurance payouts should reflect the medical capabilities of the moment.

All businesses need to move with the times for the benefit of their customers. Not too many years ago, mobile phones were a rare sight and email unheard of. Now, not a day goes past when we do not use one or other and they have radically changed the way we work.

Adapting to the world we live in and the advances that have been made have changed the way we work and often the nature of our businesses.

The protection industry is no exception. As it stands, the market needs to evolve and make progress. This is not just to reinvigorate the industry for IFAs and providers but, crucially, so that consumers have access to better, more transparent products. Some progress has been made but a lot more remains to be done.

We need to make sure our business reflects the world around us. Perhaps the most significant advancements we have seen are those that have been made in the field of medicine. Medical advances mean that many illnesses are no longer viewed as life-ending. Survival rates are increasing all the time and there are many conditions which are now manageable on a daily basis. We also benefit from earlier diagnosis and better treatment. For example, five-year survival rates for breast cancer were 52 per cent in 1971. Now they stand at 80 per cent. In fact, 20-year survival rates for female breastcancer are now higher than five-year survival rates in 1971.

Insurers cannot be left behind by advancements in medical science. As it stands, most critical-illness policies are designed to pay out only on life-threatening illnesses and conditions. This means that many people will probably not be covered for conditions or illnesses they are diagnosed with.

We should develop our products to suit the medical capabilities of the moment. Differentiation is crucial. The cover we provide should be linked directly to the severity of the disease so that we avoid the problem of paying out one lump sum not ideal if you still have many more years to live.

A personal example of this is my father, who at the age of 55 had a quadruple heart bypass. He is now 76. That is 20 years when he would have no opportunity to have CI cover. With the gradual decline in health that usually accompanies ageing, additional payouts would have come in very useful.

If we need to look abroad for inspiration, 90 per cent of the South African market is severity-based and is thriving. Their focus on innovation has allowed their product development to adapt to meet the changing needs of society.

It is unclear to many consumers why, unlike the majority of insurance products that we introduce to them, CI and disability are not proportionate and continuous. Why they do not pay out less for smaller problems and more for bigger ones? Why does cover cease after a claim? Given this, it is perhaps hardly surprising that CI seems to imply an all-or nothing policy. Policies need to be proportionate, severitybased and continuous.

Put simply, customers should be able to claim at an early stage of a condition and receive multiple payouts when appropriate. At the moment, only 50 per cent of disability claims are paid out. Disability needs to be redefined to make conditions more easily identifiable. Policy definitions have long been the bugbear of the protection industry. For example, if a policyholder’s condition does not meet therelevant definition, then it is possible that person will receive nothing. The lack of flexibility has seen consumers suffering from the policy definition lottery for far too long. It would be infinitely better to match the payout to the relative expected impact of the condition on an individuals lifestyle. The greater the impact of the condition, the bigger the payment. The protection industry needs to move forward. We should innovate and develop flexible products that are less subjective and pay out more claims, more often. We need to adapt and keep up with the world we live in because the best value plan is the one that pays out when you need it.

Angus MacIver is insurance business director at Prudential.


David Child

Vertex’s managing director of life, pensions and distribution helped foil a multi-million-pound forgery fraud when he worked for the Bank of England but has so far been outfoxed by foxes on his farm. He can console himself in the knowledge that his company leads the way with IFA technology solutions and the next step is expansion beyond the UK. Now his dream product is a commission and statement process. Interview by Sam Shaw.

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