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The frill of it all

Nicola York asks if clients want added-value services on critical cover or if they consider them to be fripperies that push up policy costs

Life cover providers used just to pay out money on policy claims but now they are under pressure to diversify their role and offer emotional as well as practical support as part of critical-illness insurance.

Companies such as Red Arc Assurance, Best Doctors and Next of Kin have spotted the potential business opportunities in this market, offering services including counselling, personal nurses and locating specialist doctors as add-ons to policies. But is the consumer more likely to buy a CI policy with these added benefits?

Prudential recently completed some research into consumer reactions to added-value services. Head of protection at the group Paul Cowman says there was a “very mixed” reaction from customers. “The general sort of feeling we had from consumers was that if they had something seriously wrong with them, like cancer, they would go to a cancer website or helpline, rather than use a specific insurer helpline. They wanted the insurance to pay them the benefits rather than provide a whole load of extra frill services.”

Cowman says the one thing which did come out of the research was that customers liked the idea in general of these things but were not interested in paying an extra premium for them.

But research carried out for Bright Grey in August 2004 suggested otherwise. The study found that 92 per cent of respondents (who were all protection plan owners) said they would find added services valuable and 74 per cent said they would be more likely to buy a protection product that included these services.

The research revealed that 89 per cent of people who would be more likely to buy a protection product with added-value services would also be willing to pay more for these services – on average, an extra 7 a month.

Lifesearch senior technical adviser Kevin Carr says: “I find it surprising that a company such as Prudential, which claims to be trying to win back IFA support, want to produce research that supports price over advice.” He says Pru’s research shows consumers’ lack of understanding of protection products which, he says, is why many need independent advice. He says seven in 10 of Lifesearch’s customers said advice made a significant change to their buying decision compared with what they thought they wanted to buy.

Prudential does not offer any added-value services and has no plans to do so at present although Cowman says the firm is looking at the CI market as a whole. He says: “There has not been a lot of innovation in the last 10 years around serious illness and I think the product does need a refresh in some way.”

There is a question mark over whether it is the role of life offices to provide services such as counselling and therapy. Cowman says: “Consumers expect the insurance companies to take the money and pay claims, not necessarily to then offer advice on how to handle your condition. I applaud anybody that offers something that helps consumers rather than just pays a cheque out but ultimately I think consumers want insurers to make sure you pay the cheque first and then offer advice and help second.”

But Red Arc’s take-up figures contradict this view. With over 500,000 members, the average utilisation rate of its critical-illness service is 85 per cent. Managing director Richard Thomas believes that mainstream services such as the NHS are struggling to cope and welcome any services that take the pressure off them.

He says: “We either believe we are in the protection business or we believe we are in the money business. I think the market will split into these two camps.”

Red Arc provides services to Bright Grey, Lifesearch, insurance broker Philip Williams & Company, friendly society Foresters and Swiss Life, although the latter has stopped taking on new policies, the service still exists for current policyholders.

Thomas believes more insurers will come round to the view that critical-illness plans should offer added-value services and says IFAs have an important part to role to play in bringing these services into the mainstream market.

“It would be good if more IFAs took the same line as Lifesearch and put the insurers under pressure to provide the same services for the benefit of their customers,” he says.

Standard Life protection marketing manager Mick James says the company is thinking about value-added services and earlier this year carried out some research into IFA views on such services. The results showed that IFAs have a generally positive attitude towards these services and would be willing to charge customers up to 94p extra a month.

James says: “We are seeing a bunching of providers, with five or six providers in every part of the market having a broadly similar and broadly attractive price. Once you have this, then you need something else to distinguish your product and add a bit of value back to the consumer.

“If you get the chance to save a life through using something such as Best Doctors, then that is a phenomenal result for everybody involved. I think this is part of what life offices probably should be involved in trying to make people’s lives better.”


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