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Do extra CI conditions add value for consumers?

There has never been more pressure on financial advisers to demonstrate the impact of the advice they provide and for complex products such as critical illness it can be particularly challenging to decide where to focus attention. However, the most successful sellers of critical illness are those that focus on the value – a combination of the price and quality – of the product.

Advisers who purely sell based on the cheapest policy are encouraging their customer to go online to check if they can get the same policy at a cheaper premium and therefore not getting any reward. By focussing on the value of the product, an IFA can quickly develop the need for advice in the customer’s mind as it will become clear that not all policies offer the same features thus reducing the risk of them going down the DIY route.

The question of value however is not a straightforward one! What is meant by quality of product? Does this mean the number of conditions offered? What about the scope of the definitions? What is a fair price to pay for this quality?

The number of conditions offered is known to be an imperfect measure of the quality of a product. It is an even harder test for the value of a product – an adviser is not a medical expert and therefore would find it very difficult to know how much is reasonable for a customer to pay for these additional conditions.

Based on recent CI claims experience, we at Pacific Life Re expect that only 3 per cent of all the claims will come from conditions outside the top 15. This works out to be around one pound per month for the average critical illness policy. The reason is many of these other conditions are already covered as part of total permanent disability or are extremely rare. This questions how much extra a customer should be advised to pay for a policy that covers a few additional conditions.

There are an increasing number of “ABI+” definitions available, which go beyond the Association of British Insurers’ standard set of definitions and offer to cover more conditions, and this too is used as a measure of quality. As with the number of conditions, it is also important to assess the value of these. As a reinsurer, we are regularly asked to consider the use of ABI+ definitions and rarely differentiate our view over the respective standard ABI conditions. Even if we do, we have never allowed for more than a couple of per cent on the expected cost of claims. This is because we do not feel these will result in materially higher claims than the standard definitions. This should also be borne in mind when an adviser is considering the price/quality trade off and choosing the right company for their customer.

Overall, I feel it is currently very difficult for an adviser to get the right balance between quality and price and decide on the best value product for their clients. There are tools available to assist in deciding on the quality of the product but little to help understand the value (price/quality trade off). This is an area where I encourage providers to help advisers by offering support to help them genuinely understand the value of the additional features their product offers. I would also like to see the companies who offer tools to highlight the quality of products, consider tweaking this to move to focus on value instead. This will increase the chance that in the majority of instances, the best value product is recommended to customers.

Alex King is head of protection at Pacific Life Re.

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  1. I agree advisers (and, in turn, the general public) need help to properly assess the value of additional conditions and ABI+ definitions, but isn’t this an area where the reinsurers could take the initiative?

    Most products are heavily reinsured and hence the pricing work for product enhancements is predominantly done by reinsurers too. If reinsurers produced material explaining the value of extra conditions and better definitions it could be broad and without product bias.

    One reinsurer produced “Critical Cards” last year to help understanding of different conditions and this approach could be expanded upon by others

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