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The big match for critical cover

Critical-illness insurance needs a major shake-up because insurers do not understand the customers&#39 needs, says Munich Re general manager Martin Werth.

He told Money Marketing last week that the market is failing to address consumers&#39 needs, focusing instead on insurers&#39 perception of their needs.

He rejects the notion that income protection should be viewed as the “poorer cousin” of CI, Werth and says for most people it is a more appropriate product.

Werth says: “The probability of dying between now and 65 is less than 6 per cent while the probability of having a period of disability lasting more than 26 weeks is more likely to be close to 15 per cent.”

Werth says most people, if they buy any protection insurance, are likely only to take out one product so there is a clear need for a product that covers as many needs as possible.

He says people want cover which will provide a payment in the event of short-term illness, serious illness, unemployment or death and do not want to have to buy four different products. “The mid to lower socio-economic groups want a product which satisfies more than one need because they are probably only going to buy one product,” he says.

Werth compares the current situation of IFAs choosing which product is right for their client with handing them a kit car and leaving them to figure out how it should be put together.

He says: “Insurers have a responsibility to IFAs to give them the right products to help them but I do not think they are doing enough.”

Werth says the industry has a serious challenge matching the products to consumer needs.

Weighing into the debate over guaranteed versus reviewable CI rates, he says one leaves insurers or reinsurers out of pocket while the other sees extra costs passed on to the consumer.

He says there must be questions about CI&#39s viability as a mainstay protection product.

Werth is also concerned over mortgage payment protection insurance, saying it is often being sold in inappropriate cirumstances.

He says: “I am very worried about mortgage payment protection insurance – it has terms and conditions that no one understands, only pays out for 12 or 24 months and then you are on your own whether you are disabled or unemployed. Yet the CML and the ABI say buy it.”

Werth predicts new products, such as mortgage protection offering cover against unexpected interest rates or banks selling unemployment and sickness cover for direct debit outgoings.

Finally, Werth dismisses the threat of regulation, saying it will make no difference to consumers and should not be used by insurers as an excuse.

He says: “Regulation is not really an issue. We have to accept that we have not been doing our jobs as well as we should be. I do not think the consumer really understands the difference that regulation makes anyhow.”

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