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Critical condition

The recent publicity over the ABI’s revised statement of practice for critical-illness insurance underlines a number of things to me.

One is the stalwart work of the protection committee in trying to rethink total permanent disability and put in place a clearer set of criteria for claims which make sense in the light of the change in medical treatments and advances.

It was a tough job and, with CI cover , the job of futureproofing the product never really ends. It is a bit like painting the Forth Bridge. It looks to me that they have done a good and pragmatic job but how long will it last?

Second, the statement looked at some other issues. The ABI is also proposing that members update the current model terminal- illness definition and that members should standardise the wordings that insurers use for excluding pre-existing medical conditions for children’s CI cover. This is a lot of change and when a product needs this much change, one wonders how viable a product it is.

Third, my experience in product development tells me that simplicity is the key to successful products. CI was so successful initially because people clearly understood the proposition – you got a serious illness and you got paid.

The introduction of activities of daily living into some definitions is a major concern for many people. It adds complexity and uncertainty to the product – a product that had such a clear cut and powerful proposition before.

I know from my experience with income protection that change is inevitable and simplification is vital and most of our work has been aimed at trying to encourage this in new concepts of the product.

I believe that the trend in recent product design for income protection shows that some real progress has been made.

One of the difficulties with CI is that sales have been declining for reasons that have much to do with the lull in the mortgage market as well as its inherent product design.

The long-term concerns over the appalling declined claim rates for total permanent disability had to be addressed and have been but many problems remain. One of the most difficult things to do is to rethink a product completely rather than tinker at the edges but this is probably what CI really needs.

There is a saying that a camel is a horse designed by committee. To invoke this as an observation about critical-illness cover is grossly unfair to a committee that has worked hard and long to find a way forward for the product. However, there comes a time when it just becomes too difficult to ensure a product still retains not only its sales appeal but its logic as a financial solution. I wonder if we have reached that time with critical-illness insurance.

Peter Le Beau is managing director of Le Beau Visage

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