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Future perfect?

Nicola York examines the ABI’s latest initiative to safeguard CI business but finds IFAs sceptical of whether it will really benefit clients

ABI critical-illness working party chairman Nick Kirwan says the basic premise of future-proofing is to devise sustainable definitions which will mean fewer changes to policies in the future.

According to the recent ABI statement of best practice consultation paper, guaranteed CI premiums rose by 60 per cent between 2002 and 2004, resulting in falling sales.

Kirwan believes future-proofing will help to create a framework in which the product is more affordable by clarifying the level of cover that is being offered.

“The more the uncertainty, the less affordable the policy becomes because we have to allow in the premium for that uncertainty, so that is why it is very important,” he says.

But future-proofing has its critics and there seems to be much confusion over what exactly is being proposed.

Chadborn Baker & Kearle principal Peter Chadborn says if he has understood the concept of future-proofing correctly, then the client’s ability to claim seems to be a moving target.

He says: “I cannot comprehend sitting down with a client and trying to position a contract with them where their ability to claim is based on future unknown events and unknown developments in medical science.”

But Kirwan says the cover cannot be reduced in existing policies – except in a very few cases where the insurer has written in a clause saying this could happen. He adds that there are no barriers preventing insurers from adding new illnesses to existing policies.

Jelf Group director of private clients Charles Bailey believes that new illnesses and medical advances must be taken into account in existing policies. He says: “If there is a new disease like CJD, for example, then insurers need to say we are going to cover this for new policies but we will change existing policies to cover it as well, so you have got the best of both worlds.”

Kirwan says medical science is moving all the time, which has resulted in several generations of CI cover. He says there are currently pre-1999 policies which had no standard definitions, then a generation of policies from 1999-2002 and now the current policies which arose after cancer and heart attack definitions were changed.

He says it is important that there are fewer changes to definitions and policies so it is easier for advisers and consumers to understand what is and is not covered.

He also says there should be fewer discrepancies in claim decisions. For example, a pre-1999 policyholder and a 2004 policyholder may have the same illness but only one of them might be able to make a successful claim. Kirwan hopes future-proofing will iron out these “odd decisions”.

Capital Asset Management director Alan Smith thinks future-proofing is a good idea in principle but that the market is becoming more complex. He says: “IFAs almost have to have an understanding of medical science to advise fully on this, which is a slight concern for IFAs who are not qualified as doctors or specialists in this market.”

Smith thinks future-proofing will make it more comp- licated for IFAs to explain policies to clients and “one thing that clients do not like is complexity”. But as long as the IFA has done his research and communicates clearly with the client at the outset, then he believes future-proofing is a positive step forward in the industry.

Kirwan stresses that the objective of the exercise is not to change what is covered today. “I can assure you that if somebody had breast cancer that was covered yesterday, it will still be covered tomorrow.

“We are not putting in any severity requirements. We are not saying there have to be really bad symptoms. We are just saying that there have to be measurable medical symptoms,” he says.

But Chadborn cannot see how this will work. He says: “It is a bit confusing. If it is going to keep premiums down, then that must be their way of keeping claims down, which means they are putting on restrictions.”

It seems more work is needed by the ABI working party to clarify what future-proofing will mean for the protection industry.

Chadborn says: “It needs to be made clear exactly what they mean because the whole issue of future-proofing to me could be construed as a way of life offices reducing their claims because there is some clever clause that is put in their plan.”

Kirwan urges IFAs to respond to the proposals by the end of the consultation period on November 30.

He says: “This is your chance to have your say. None of these recommendations is final. I am sure that most of them could be improved because that is the whole point of doing this.”

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