In looking to reinvigorate the market, the typical response from insurers has been to try and increase their market share by adding yet more conditions. In truth, they are only trying to obtain a bigger slice of the same pie, yet it is the size of the pie that we should be concerned with.
Adding conditions is understandable in that it is easier for non-specialist advisers to promote company A because it covers 37 conditions rather than company B, which covers 34. If only it were that simple.
I am all for offering comprehensive CI cover and, wearing my consumer hat, I have taken great care to ensure my own CI cover is as wide-ranging as possible. However, there are clear signs that this approach is not working. A recent FSA investigation highlighted consumer confusion over CI plans, primarily the extent of the cover which often involved confusing the plan with income protection.
The signs show consumers have little appetite for delving too deeply into product particulars and, realistically, it is not fair to expect them to show an interest when a large portion of the adviser population show scant interest themselves.
Adding conditions is good news from the perspective of increasing the likelihood of a claim but it will not tempt consumers into buying more products. In fact, it may have an adverse effect in dissuading advisers from focusing on CI due to their own confusion and indifference.
One possible answer is to deliver a stripped-down product that offers simplicity while covering the areas most likely to give rise to a claim. This is not a new concept – back in the 1990s, many providers offered plans that covered five core conditions. Such a basic plan today could encompass cancer, heart attack, stroke, multiple sclerosis and coronary artery bypass graft.
A similar plan, perhaps covering different conditions, could prove attractive in the current economic climate. The cost would not be much cheaper as the main claim conditions would be included, but a cost reduction allied to a pared-down product could be a winner.
HSBC has introduced a variation of this which also offers reduced underwriting and a three-month claim moratorium to avoid anti-selection. It has increased its sales in a similar way to the rise in its income protection sales as a result of offering a budget variation.
There is certainly room for comprehensive cover, and any consumer with the relevant budget and discerning nature is likely to opt for such a plan. However, in an increasingly throwaway culture, simple, cheap products win out over quality as far as the typical consumer is concerned.
The question is, should IFAs leave this to the banks?
Alan Lakey is a partner at Highclere Financial Services