It is no secret that the critical-illness market is not in great shape and declining sales in the advice channel over the past few years look set to continue.
Against a backdrop of increased legislation, questions over reinsurance capacity, uncertainty on price stability and growing numbers of non-advised sales, what can be done to stop the rot and breathe new life into the market?
The Association of British Insurers is looking into how the current CII model is maintained. It is worth pointing out it is still in the consultation process and nothing has been decided.
Among its suggestions is creating a two-tier definition of cancer. In layman’s terms, this amounts to a serious cancer definition and a not so serious one. This is quite a contentious issue, as it has the possibility to be perceived as just another way of the industry trying to get out of paying claims. It is not that at all but it will be perceived that way. In any case, I think it would be hard to find one person who has been diagnosed with any type of cancer who will tell you that it was not serious.
My view is that a two-tier cancer definition will not work and will not lead to an increase in sales. It would just add an unwelcome layer of complexity to the product and advisers will opt to recommend the more generous definition every time.
Another issue that the ABI is considering is that of future-proofing. In theory, I support the concept of future-proofing. Anything the industry can do to help clarify what we will and will not pay out on, while taking medical advances into account, should be welcomed.
The case of prostate cancer is a good one to help explain how future-proofing works. Without CII definitions being future-proofed, any man diagnosed with early-stage prostate cancer would be eligible to make a claim, even though the chances are that the disease could be treated successfully and full recovery would be highly likely.
Paying out on these types of claims pushes up prices and makes it harder for people to afford cover. The result could be that people with genuinely critical illnesses have no cover because they cannot afford it.
The purpose of CII is to provide a critically-ill person and their family with money at the time that they become critically ill, not before.
People should be under no illusion that a claim will be successful if they are not critically ill.
The key here is straightforward, honest communication. When the ABI first published its consultation, this is the issue that received the most negative media comment.
Again, people saw it as a way of product providers moving the goalposts and trying to avoid paying future claims. This is certainly not the case. In fact, it is the opposite.
Communication is the key to the survival of CII. There is a lot of miscon-ception about what CII actually does. Some people even advocate changing its name by replacing the “critical” with “defined” or “specific”. Will this help breathe new life into the product? Of course not.
Perhaps a new second-generation product is needed, one that is impact-based instead of definition-based. There is certainly a lot of noise surrounding this option at the moment.
But let us face it, the market may be ill but it is not dead yet. Advisers are not likely to move to recommending a second-generation product overnight, especially while the existing product is still around.
One thing for certain is that the industry is in danger of overtinkering with CII. When the end comes for the current product model, it will not be because there is no consumer appetite or need for it and it will not be a misselling scandal that brings it down.
It will be as a result of not addressing the fundamental issues of being fair to consumers and giving them a product they can understand or not making significant enough changes to cope with medical advances, allowing the product to become unaffordable and inappropriate.
If CII dies a slow death, consumers will go unprotected and be exposed in a way that we have not seen for a generation.
Surely we can all get together and avoid this happening? CII still has, and must continue to have, an important part to play in the foundation of any proper financial planning. I look forward to seeing the results from the ABI consultation.