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Understanding the benefits of IP

Ned Flanders’ house is destroyed by a hurricane in The Simpsons. Ned had no home insurance because he believed insurance is a form of gambling. Insurance is a bit of a gamble, weighing up the odds of the worst happening and working out which critical-illness cover to recommend has become more of a gamble in recent years.

CIC is a great product but every new enhancement makes it harder to establish which is the best cover and information from providers is scant about how additions will lead to more paid claims.

It is difficult to know if the policy that looks to be the most comprehensive will cover what a customer might get diagnosed with, due to so many variants. Providers are making things complex by adding on competing conditions that might not make much difference to ability to claim but which still have to be considered by the adviser.

We also have some providers questioning whether some recent ABI+ additions from their peers are true ABI+. Are we going to end up with ABI+ and ABI++ and even more complexity? I hope not.

Then there is total permanent disability. I am concerned that varying definitions of incapacity look to remain as they lead to claims being declined. If TPD is offered, it should be priced on an own-occupation basis or not at all.

It is a tricky problem to solve, given the competitive nature of the market, but the more I worry about CIC, the more I am reminded of the benefits of income protection. Ideally, customers should have both but if they cannot, IP can be a safer bet and is often better advice anyway.

There are circumstances when CIC will pay and IP may not due to a long deferment period but at least customers plan for that at outset and are not risking being diagnosed with something not on the CI list. Severity-based plans are an alternative but I still believe IP is the strongest choice and, with insurers accepting more customers on an ownoccupation basis thereby increasing the number of claims, there is even greater reason to recommend it.

One persistent issue with IP is lack of awareness, so advisers have to invest more time explaining the benefits. Providers, especially those against the conditions’ race, should take advantage of this by promoting IP. Providers need to back up their IP offerings with good processes that can compete with CIC, and commission for IP is often significantly less than for CIC too which needs to be rectified. Advisers put in more work for less income, which is not right. Some have addressed these issues so it is possible.

So let’s reduce the odds of claims being refused on medical technicalities and help more customers understand the benefits of the much undersold IP.

Emma Prescott is life office relationship director at Lifesearch

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. The CIC market will never be simplified, because providers need to be able to compete on something other than price. If all definitions and claim histories were the same, then only the cheapest firm would ever get any business. So providers have to decide whether they are going to compete on price or on quality.

    BUPA led the way by proclaiming that they had the most definitions. This got them business so other firms have added definitions. I was in IFA sales at Friends Provident a few years ago and the underwriters at the time refused to add spurious new definitions in that wouldn’t provide additional benefits. I think that they have relented on this now.

    An example of this was Liver failure (exc through damage because of alcohol). However if you have liver failure that isn’t caused by booze, you will be eligable for a transplant and therefore be on the transplant list and the policy will pay out. No additional benefit to the client, but looks better on the literature. The problem being of course that you see BUPA gaining market share doing this and you have to follow.

    Regarding IP, massively undersold, however the problem with it receiving any sort of mass appeal is the underwriting. 80% (ish) of claims for IP are caused by bad backs and mental health related issues (stress). No sane underwriter is ever going to touch somebody who has had even the slightest twinge in their back or has had any issues with stress. This unfortunately rules out a lot of people form being able to benefit from IP. My experiance of IFA’s was that they would buy into the idea, recommend a number of policies, 50% of them would be declined or rated and they would then give up and go back to recommending CIC because it is easier.

    No easy answer though, because if you make the underwriting any easier. the price will have to go up which will mean less sales.

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