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CI cover “too complicated and expensive to sell”

We were debating (read that as arguing) in the office whether critical-illness cover could be sold within a simplified product regime and trying to hypothesise how the current range of CI products could be sold under a simplified advice process. You can imagine the difficulties as we still have no idea whether these “simplified” concepts will turn into reality and, if they do, how they would operate within the existing framework.

We took a step back and looked at the current position to assess how we operate in the market to support the sales of CI products.

We have intermediaries using LifeQuote software to get a range of CI quotes ranked by price, where the selection of provider is the responsibility of the adviser within their normal advice regime.

Within the direct market, the customer is buying because the products are accessible via specific brands or aggregation sites, where we are discounting and often providing much smaller sums assured via an upsell mechanism.

The sum assured, term and provider is the customer’s choice, with the decision supported by the normal literature you would expect to see. Over the years that DLPS has been operating, tens of thousands of CI policies have been sold via these channels. But CI product sales have never reached their potential and sales have been slightly decreasing, with standalone CI virtually disappearing.

There are two main reasons why we are not selling as much critical illness – it is too complicated to explain easily to most consumers and it is too expensive.

Products are complex to explain as more providers add additional covers and provide additional payments without reducing the sum assured. The products provide great cover but the degree of complexity holds back sales as people do not buy what they do not understand.

The perception is that CI is an expensive product. I would argue that term cover is too cheap, so when a consumer looks at buying CI, all they see is the pricing differential and the link to increased likelihood of claim is rarely made.

The name critical illness is very subjective and will be measured by the client at the time of an incident. In reality, the contract pays out when a listed condition is met. Could we look at it in a different way? Could we provide very specific cover for defined illnesses such as heart attack, cancer, stroke and multiple sclerosis and within a product solution define the premium for different sums assured?

Another way of looking at this is to try and redefine what a life-threatening critical illness is and what a serious illness is. Restructuring the sale of CI from a lump-sum payment to an income-related benefit over a restricted period could be more appropriate, appealing and cost-effective.

Neil McCarthy is sales and marketing director at Direct Life and Pensions

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Those advisers who find CI too complicated dont have a chance of gaining the necessary qualification to get through post 2012, so no problem come 1st Jan 2013!

  2. PruProtect Serious Illness cover, anyone?

  3. I agree that the more comprehensive CI plans require more in depth investigation & a greater knowledge of the market but surely this is good for the professional IFA; where the value of their in depth product knowledge,experience and advice is paramount.

  4. “Income related benefit over a restricted period” where the period ends at retirement or when the policyholder is able to return to work – income protection seems to fit the bill.

  5. Solution – surrender your commission and charge a fee instead, that way the client will win because their premium is reduced by approximately 20% for the life of the contract, you win ‘cos you get paid up-front with no future claw-back liability if the policy is cancelled early and you PI insurer will be happy as your future liabilities are reduced – simples!!!!

  6. Banks sell it, sorry their clients, sorry their customers purchase it on a ‘non advised’ basis with full commission and no qualifications required by the staff. Same at Tesco.

  7. A chat with Alan Lakey who, as a protection specialist, is very knowledgeable on the subject of CIC, will swiftly confirm just how difficult it is to compare different products and to arrive at anything other than a decidedly subjective determination as to which one offers the best value for money. Price certainly isn’t the sole arbiter.

    I agree very much that CIC products offering cover for just a limited number of the most common and most commonly known about types of conditions would quite possibly be a great deal more popular than the current assortment of ours-has-more-conditions-than-yours products. That having said, Virgin’s cancer-only term insurance product is perhaps rather too far at the other end of the spectrum.

    The crunch factor, of course, would be whether or not such streamlined products would actually work out significantly less expensive than those with all the peripheral bells and whistles.

    Prudential’s severity based CIC plan is an interesting foray into new territory, though it’s also a great deal more complicated to explain to possible purchasers and it would be interesting to know to just what extent it’s taken off. My concern has always been over a possible dispute between what a claimant’s GP may consider an appropriate pay out as a percentage of the full sum assured and what the insurer wants to pay. If the doctor recommends 70% and the insurer will only pay only 50%, then you have a decidedly disgruntled client on your hands. There has to be an element of (professional) subjectivity which, to my way of thinking, is very difficult to remove from the process.

    On top of that, we recently received from our network a quite extensive template for letters of recommendation to this type of cover. An early paragraph reads:-

    Critical illness cover is a type of insurance that pays out a lump sum if you get one of the critical illnesses and it is severe enough to be covered by the policy.

    You never saw that ten years ago or at least it wasn’t something that we (or, I suspect, most other advisers) ever thought to include in our letters of recommendation.

    Then, of course, there are all these stories of insurers either declining claims or making the claims process so protracted and so frustratingly difficult that those who’ve been through it wouldn’t recommend a CIC policy to anyone. I know many insurers have striven hard to reduce the percentage of claims they reject, but the damage has already been done.

    Plus, there’s that thorny old issue of non-disclosure ~ you didn’t tell us you had an operation for an ingrowing toenail 20 years ago, Mr Claimant, so tough, we’re not paying.

    How did life ever get to be this complicated?

  8. The correct policy is the one that the client is able to claim on should they ever have a serious illness. A little bit of foresight is required! CI plans are not easy to compare and never have been.
    In response to Julian, I would say that 10 years ago we did give very detailed CI (and PHI) Suitability Letters pointing out the need for disclosure and that not all claims would be met. We were and still are concerened about what is and is not covered and how you justify the more expensive plan A over the cheaper plan B when your instincts tell you Plan A is better. Also about 10 years ago we were screaming about the lack of claims information from providers since we wanted to include it in our justification considerations but alas this was not generally available.
    Providers need to speak with advisers (not sellers) more often.
    Finally, for CI you could replace the term CI with PHI since thirds article surely applies equally to PHI because PHI is such a so and so to research.

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