The future of guaranteed rates for critical-illness cover seems to be rosier than it has been in the past but IFAs should be asking how long a shelf-life these products have and whether or not it is a case of buy now while stocks last?
There has been substantial movement in the sector over the past few months,with Bright Grey and Axa both launching guaranteed offerings this month and Scottish Widows telling the marketplace that it intends to launch a guaranteed rate product around March next year.
At the time, that Bright Grey came to market, it only featured reviewable rates, in part because many reinsurers were either pulling out of the guaranteed marketplace or were increasingly more exp- ensive. Product director Roger Edwards says: “When we looked at it, reinsurance was extremely difficult. Advances in medical technology were making it harder to judge payouts. Some reinsurers simply pulled out of the marketplace.”
The problem, says Edwards, has been that although guaranteed rates have always been more popular with clients, Bright Grey could not come up with an affordable offering. But Bright Grey’s reviewable products have been well received.
In the last few months, it seems that reinsurers’ nerves have settled down and Bright Grey is launching a guaranteed product this week in a strategic move to try and capture a marketplace that was simply not open to the fledgling company. Edwards says: “Although they liked us, many IFAs would not put their CI business with us because they found it hard to make reviewable rates attractive to their clients.”
He says Bright Grey will not be cannibalising its reviewable business. “Those IFAs that like our reviewable offering will not simply stop recommending it and swap to guaranteed rates. They are both strong offerings in their own right and people will take them up for different reasons.”
Bright Grey is not the only firm to take a serious look at the guaranteed rates. Axa Sun Life has spent considerable time over the past year developing a guaranteed-rate product as part of a revamp of its protection proposition, released this month. In the long term, it is believed that Axa is also looking to include offers such as home cover and pet insurance in a bid to make its menu a one-stop shop.
King says there are few good guaranteed products at the moment. “The ones to look for at present are the big players – Legal & General, Friends Provident and Norwich Union all seem to be well priced with fair offerings at the moment.”
In general, King says product providers believe consumers are now keener on guaranteed rates because of rises in premiums this year.
He adds: “But until now, providers have preferred to launch products where the guaranteed rate is reviewed after a fixed period of years.”
However, even though companies such as Bight Grey and Axa believe the time is right to launch a guaranteed product, Edwards says he does not believe the guaranteed market has completely settled down as yet. He says: “I am sure there will still be increases in premiums across the marketplace and a tightening of definitions. It may be a case of taking advantage of the present wave of new offerings while they last.”
But Lifesearch senior technical adviser Kevin Carr believes guaranteed products are now here to stay “A couple of years ago, reinsurers over-exaggerated the rises in the market. We had a year of panic, then a year of stability and now I think we will see a year of growth. We will see significant change in the product before we see the removal of the product.”
Carr says this is good news for brokers as well as clients. He says the public still prefer guaranteed rates and it is easier for intermediaries to sell them. More entrants in the guaranteed arena will bring competition and wider choice.
But King agrees with Edwards that the position could change although he is certain that in the short term there will be much more choice for IFAs. He says: “Reinsurers are still committed to changing the marketplace. Their problem at the moment is there is not a lot of support from intermediaries, so to get to market, they have released more capacity for guaranteed products. I do not think this will be sustainable over the longterm.”
King believes the result will be guaranteed products for the next 12 to 18 months but once the reinsurers get their way, they will become less available: “These guaranteed products are good but get them now. Clients will not have as much access to them later,” he says.