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Serious business

Product providers have another two months to update their critical-illness products to meet the revised ABI statement of best practice. This involves changes to the definitions of cancer and heart attack and allows early-stage prostate cancer to be excluded in response to advancements in medical treatments and screening techniques.

The change to the cancer definition is an attempt to move the benefit back to covering more serious conditions. As medical advancements continue, we are likely to see more definitions altered and conditions excluded as illnesses become more easily treated.

Given rising premiums and concern about guaranteed rates in the critical-illness market, the change to the cancer definition is sensible. But when we promote critical illness to our clients, we have to be aware of the potential implications on future claims.

The words used in the prostate cancer exclusion are: “All tumours of the prostate which are histologically classified as having a Gleason score greater than six or having progressed to at least TNM classification T2N0M0.” While this might be clear to an oncologist or claims manager, it is meaningless medical jargon to the consumer. If we do not communicate clearly what it means, consumers could be angry if it results in a claim they thought would be paid being turned down.

One of the reasons for the success of critical-illness cover has been the simplicity of the message. If the client suffers from one of the illnesses in the list, they will be paid a sizeable sum of money. But this message does need qualification. The client&#39s illness has to satisfy the definition in the policy. A client could get a type of cancer that does not meet the definition or is excluded from the list.

If the client believes their policy pays out a certain sum in the event of developing cancer, they feel cheated if the reality is that they are covered only for a specific cancer which has developed to a specific stage. Any resulting dispute would be blamed on “small print” not only by the client but any journalist who might pick up the story.

Clarity and simplicity are critical to the continued success of this type of cover. People should understand that critical-illness cover offers very real value if they suffer a serious life-changing illness. But it is important to manage their expectations. Explaining the definitions in detail has never been more vital and this is something that IFAs can do as part of the advice process.

We have to make clients understand that the policy definition is often very different from the medical definition of an illness. For example, consider benign brain tumour. The medical definition is a mass of diseased cells in the brain that have divided and increased too quickly and are not likely to return after treatment or removal. The critical-illness definition is a non-malignant tumour in the brain resulting in permanent deficit to the neurological system. Tumours or lesions in the pituitary gland are not covered.

It is clear that someone who meets the medical definition of benign brain tumour but who does not experience permanent damage to the neurological system would not meet the policy definition and would not get paid.

The problem is that this is quite a detailed discussion to have with a client and may complicate the sale by detracting from the simple critical-illness message. But while we do not want to make the product look less attractive, our clients need to know what is covered and what is not.

Recently, both the national press and BBC&#39s Watchdog programme have highlighted a few disputed claims where the policyholder&#39s illness did not meet the definition. Given the huge number of critical-illness policies that have been taken out since the late 1990s, it is likely that the number of claims will increase exponentially. Unfortunately, it is also likely that the number of disputed claims will increase.

The majority of claims are paid but it is the disputed ones that will get the publicity and perpetuate the public perception that insurance companies try to find any excuse to avoid paying claims. IFAs and providers need to promote positive stories to overcome this perception.

The market is in a considerable state of change. Premiums are increasing, there is speculation that guaranteed rates will disappear and product developers are talking of changing the product structure, for example, by using reviewable illness definitions or severity underpins.

Whatever happens, the benefit does provide people with valuable protection. But if we are to persuade more of them to buy it, we have to ensure that the number of sensationalised declined claims is kept to a minimum.That means IFAs and providers working together on the clarity of their communications to ensure all clients understand what is covered and what is not.

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