IFAs are calling for critical-illness insurance providers to reveal their second-generation product plans but reinsurers are warning that there will be no rush to be first on the market.
Swiss Re technical manager Ron Wheatcroft describes future changes to the market as likely to be implemented in a “softly, softly” way. He says: “As with any good product, the proper groundwork, in terms of consumer and IFA research, needs to be put in. For the new generation of critical-illness products to be credible, there needs to be a variety of providers coming out at roughly the same time, as advisers are rightly preoccupied by choice and competition.
“There is no race to be first and it is fair to say we are not very close to providers launching new-generation critical illness. For IFAs, 2004 will be the crunch year when they will have to get in line with regulation and probably look again at their business models. It will not be easy to introduce the right new products against this backdrop so many product providers are likely to wait until a better time.”
Some major product providers, including Abbey, suspect that the growing clamour for new products is not being driven by advisers but by players which cannot offer the choice of guaranteed rates.
Abbey for Intermediaries head of marketing and product development Nick Kirwan says: “There are some players that cannot offer guarantees – which so many consumers and IFAs value – and are talking down the current market and talking up the need for new-generation products.”
New-generation products are likely to hinge on what exactly is a critical illness and defining this will involve a shift away from named conditions covered to focusing on the detriment to the policyholder's normal life. Kirwan says: “The great thing about today's CI is that clients understand it. It is the kind of product you can explain in one sentence but so-called hybrid products are far more complicated and the client's eyes are likely to glaze over before you have finished explaining them.”
The secret of the success of current CI contracts, whether they come with guaranteed or reviewable premiums, is arguably that they offer tangible and understandable benefits, with business being done at record levels, so some firms see no need for a new approach.
Lifesearch senior technical manager Kevin Carr says: “The market is not exactly crying out for new products – we are probably on for another record year. Rate changes have not had an impact on sales as clients do not decide on buying critical illness based on price.”
Wheatcroft reckons that providers are likely to meet resistance from some advisers when new-style CI policies do hit the market. He says: “We have all recognised the phenomenal sales figures for CI, so it is going to be very tough for providers to say to advisers – you have sold this really well, now we are going to ask you to sell something different really well.”
Swiss Re says it has signed confidentiality agreements with several providers developing new CI policies.
But Direct Life & Pensions sales and marketing director Richard Verdin believes providers must stop protecting their plans from market scrutiny. In a sector where there is a growing list of providers reviewing their rates and cover – earlier this month, Scottish Provident joined firms including Norwich Union, Skandia and Scottish Widows in imposing a ceiling on sums assured – there needs to be open debate about the solutions to the issues facing the future of the market.
Carr says: “There is a serious case of providers not wanting to be the first. They simply do not want to get it wrong and lose their place in the market, they might be afraid of not covering themselves in glory. But if new-generation products hit the mark, being last will mean missing out on IFA favour, and of course, profits.”
Undoubtedly, providers are working on new CI offerings and those advisers pushing for new-style CI policies ought to be prepared for fundamental change, say some experts. Traditionally, IFAs have been impressed by providers where lists of illnesses covered have been ever expanding but new products will more than likely reverse this trend with shrinking lists.
Wheatcroft says: “IFAs have wanted to offer their clients the widest protection possible but changes in the market force them to think about what the cover is really for and in what way they can best meet the protection needs of their clients. This, in turn, might prompt a change in their business models.”