Simplification is regarded by many as part of the solution to poor take-up rates of protection products. The recent Chartered Insurance Institute report, Building Resilient Households, states possible changes to the way products are designed and underwritten may be a significant influence.
So how are critical illness insurance providers responding to the need for simple and affordable products when this area can be highly complex and expensive? And can the simplification process only work if the products themselves are simple?
Plan Money director Peter Chadborn points out the CI market is characterised by two opposing forces. He says: “From the consumer viewpoint, what most people worry about is one of the headline conditions like cancer or a heart attack.
“But as an industry we are so tied up on detail because we are concerned about covering as much as we can. The problem is that having so much detail in policies risks confusing the consumer.”
For product providers, the result is a trade-off between the simplicity required by consumers and the complexity that comes with the flexibility they want to give advisers. Two recent product launches illustrate the point.
In August, AIG Life introduced its Key3 CI plan, which focuses on three conditions: cancer, heart attack and stroke. These conditions accounted for around 80 per cent of AIG Life’s CI claims last year.
AIG Life already has a fully comprehensive plan, as do its competitors, but its chief executive Adam Winslow believes sales of such plans are in decline due to consumer concerns about complexity and cost, particularly post-RDR when the advisers that sell them are serving fewer people.
He says: “The Key3 product is about 20 to 25 per cent cheaper than our comprehensive plan as its covering 80 per cent of claims, not 100 per cent. But it’s absolutely not taking people away from the comprehensive part of the market.”
Simple products need a simple process but to put a simple process around a comprehensive product is hard to do
Winslow says Key3’s simplicity has attracted advisers new to selling CI, who are bringing in customers that have never had cover, thereby growing the market rather than cannabalising existing business. That said, he believes putting a simple process around a comprehensive product would be “putting a square peg in a round hole”.
He says: “Simple products need a simple process but to put a simple process around a comprehensive product is hard to do. The advice market acknowledges it needs flexibility as every customer’s needs are different, but not everyone has access to advice and the average man in the street doesn’t need complexity.”
Aviva enters the fray
Aviva announced a new suite of individual protection products for advisers in November following its acquisition of Friends Life last year. Aviva’s Critical Illness+ comprises three tiers: core critical illness cover, an upgrade option for adult cover and a separate upgrade option for children’s cover.
Aviva head of protection propositions Paul Dalgliesh says it has not followed AIG Life’s approach in focusing on three conditions because its plan is a core product for advisers.
That said, he is supportive of simple products for niche distribution channels as a way of potentially growing the market.
However, CI Expert founder Alan Lakey believes Aviva’s approach goes back to the late 1980s, when basic plans covering a handful of conditions could be upgraded.
He says: “That went out the door in 1992 and the main reason for that was very few people buy the basic plan.
“Aviva is not fully back to the basic concept as its plan has 36 ‘100 per cent conditions’ and two additional payment conditions. And the upgrade is as comprehensive as anything out there – it’s a very good plan. But it has all been done in a convoluted way, which is a shame.”
For Lakey, the problem the industry faces is being “caught between two stools”. He says: “The more conditions covered, the more chance there is of a claim and so the more costly it is for consumers.”
As a protection specialist, Lakey says he would not use AIG’s Key3 plan. He says: “AIG is aiming this at advisers, primarly mortgage advisers, who are so busy they don’t have the time to talk about protection or they are confused by the range of products available. Advisers like me won’t use it and AIG doesn’t expect us to.”
Lakey points out once consumers have bought a simple plan they will have already been persuaded that the concept of CI insurance is sound, making it easier for advisers to encourage them to take out wider cover. “It’s my job to do it properly,” he says.