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Pick ‘n’ mix approach needs chewing over

Disability cover is an odd assortment which sticks in the throat of many consumers

If it ain’t broke, don’t fix it. This is a rule I like to follow but to do so without question can blind you to the obvious.

Time does not stand still and things change continually. As new situations arise, we find that what once suited our needs now no longer fits the bill. Apply this to the life industry and we are staring disability cover in the face.

As the critical-illness product approaches its 20th anniversary, I believe we must ask some fundamental questions about the suitability of disability cover. In my view, it is broken and, unless we make the right changes, it will be lost for ever.

Why is this the case? Dis- ability cover is often thought of in the context of being a catch-all product but this is not the case. Critical illness originally covered three conditions and one surgical technique and was designed to pay out on life-changing events. Today, the industry covers about 35 illnesses and conditions, yet the scope of the cover has not improved proportionately. Disability cover was not even part of the original proposition.

Policyholders must still meet very strict criteria relating to disability. It must be total and permanent, which in many cases is equivalent to failure to be able to do four activities of daily living or daily work. As long as the claimant satisfies the criteria, the product will pay out. Anything even slightly less than meeting these criteria results in no payment being triggered.

And this is what is at the nub of the issues facing the industry. Currently, there is no such thing as being 99 per cent disabled. Either you are 100 per cent disabled or, by strict definition, under disability cover, you do not meet the conditions whereby a payment will be made.

It is little wonder that customers feel let down. The void between what they think they have paid for and what they are covered for is growing all the time, with the result that the rate of declined claims is rising year on year. Is this good for the industry? Of course not. The last thing providers and advisers need is a raft of cases landing at the ombudsman’s door.

My view on this is simple. The bases on which claims are accepted or declined are far too subjective. We cannot continue to have a high rate of declined claims – it is damaging customer and adviser confidence. We cannot continue to have decisions based on variable definitions which could be open to interpretation. The lack of standard definitions is possibly the real culprit. Payments are being made on a pick-n-mix basis precisely because under- writers’ views are so subjective.

As time has marched on and the wording of definitions has remained loosely the same, the list of exclusions has crept up. The result is that the supposed catch-all nature of disability cover is being pulled closer together and squeezing out the likelihood of a claim matching the criteria for payment.

Disability cover often tends to be sold as a bolt-on to critical-illness cover but the objective of each type of cover is different. In the consumer’s eye, they are often considered to be the same thing and the precise nature of the cover intended under each is misunderstood. So is now the time to change? I get the increasing feeling that the industry wants to act. Trying to get a consensus is taking far too much time and I feel that it is unlikely that the product in its existing form can be brought back from the brink.

We can tinker around the edges, especially on tightening up on subjectivity and being more objective. While critical-illness cover also has its critics, at least it has a set of standard definitions. Adopting a similar approach is an immediate necessity but only a short-term one. In the longer term, someone has to break the mould and produce a new solution to disability cover. Let us hope for the sake of the industry and our customers that it is sooner rather than later.

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