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The way ahead

Standard Life

Group Personal Pension Flex

Type: Group personal pension Minimum premium: £6,000 a year a scheme Minimum group size: Five Minimum-maximum ages: 1-75 Fund links: Sterling one, fixed interest one, index linked one, property one, protection one, structured one, managed one, ethical one, stock exchange one, international one, European one, Japanese one, North American one, Pacific Basin one, UK equity one, FTSE tracker one, Far East one, Standard Life global selector, Standard Life UK smaller companies, Deutsche managed portfolio, JP Morgan Fleming life moderate, UBS life managed, Deutsche Asset Management balanced, Baillie Gifford managed pension, Newton exempt global balanced, Newton managed, Gartmore European selected opportunities, Threadneedle American select growth, Fidelity special situations, Fidelity South-east Asia, JP Morgan Fleming life global 70:30 equity Charges: Annual up to 2% up to £24,999, up to 1.9% £25,000-£49,999, up to 1.8% £50,000 and above Allocation rates: 100% Minimum term: Single premiums two months, regular premiums two years Commission: Level 2.5%, renewal 0.2% Tel: 0131 225 2552

Health is always a topical subject ranging from the simple greeting: “How are you?” to being the subject for a platform address by leading politicians.

Our health is an aspect of living that impacts all of us due to its nature of being able to generate a range of emotions few others can match.

It is also fundamental to protection insurance both at outset and crucially at the point of claim. Welcome and rapid adv-ances in medical science mean experts are predicting that we are all going to live longer although perhaps in poorer health. These medical adv-ances will impact on the shape of the health products providers offer.

This is particularly true for critical-illness cover, a market that has experienced rapid growth over the last few years. However, as with most fastgrowing markets, there will be product challenges to be add-ressed and met.

Some are of the view that current CIC products in existing formats are unsustainable, believing that medical adv-ances with earlier diagnosis of critical illnesses will translate into an increasing claims burden. There is also the view that medical advances mean that full recovery from major illnesses will become commonplace, with claimants returning to work a few days after major surgery or diagnosis of a critical illness.

If this is the future reality, then the primary purpose of CIC – to provide a financial cushion to enable claimants to review their lifestyle if they survive a life threatening illness – is fundamentally flawed.

The recent changes to the ABI statement of best practice, particularly for prostate cancer, go some way to addressing the issue. Concerns have been raised in the reinsurance market over offering products with guaranteed premiums in the future. Nevertheless, customers must be offered products that meet protection needs, remain affordable, transparent and understandable for the full period they are required.

To date, product development has been largely led both by providers and the OFT, not necessarily by consumer dem-and. For instance, the rapidly lengthening list of illnesses covered under CIC is more a ref-lection of competitor pressures than customer need.

One of the alternatives for the future could be reviewable pricing. It is really only in the last few years that guaranteed prices have dominated the market. Why should that be? Well, perception supported by traditional thinking could have a lot to do with it.

Customer perception is that any reviewable pricing by insurers would only move in one direction – upwards. That is why they buy products with guaranteed premiums. Customers like to know what the premiums will be in the future and do not want the uncertainty of unknown charges being levied.

Past experience of pricing reviews, for example, in the early 1990s, shows that the prices of renewable term products were significantly inc-reased in the light of concerns over Aids.

More recently, premium increases levied on income protection business have hit the headlines, with some customers claiming they did not know this would happen.

The difference between reviewable and guaranteed premiums at outset is sometimes only a few pence. This could be the primary reason for the popularity of opting for guaranteed rates at outset.

But let us consider the logic of reviewable prices from a consumer viewpoint.

Life insurance and criticalillness premiums are likely to be one of the few items of regular monthly expenditure that is guaranteed not to change for the next 20 or so years. Every other item may, without exception, change, from mortgage payments to council tax or from utility fees to sports club membership. So why should life and CIC premiums stay the same? Consumer needs will change with their lifestyle and life stages and a product with reviewable premiums can provide the opp-ortunity to consider alternatives and review needs in the same way as the expiry of a fixed-rate mortgage does.

Additionally, CIC is bought to provide benefits for a disabling accident or life-threatening event. Review points in the context of medical developments provide the ideal platform to position it as exactly that.

In this fast-changing world, protection will need to reflect lifestyle change and the days of cover and premiums being fixed for 25 years may well not best provide the protection solutions for tomorrow. It is those who are ready to change that will lead the way to a well-protected world.


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