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Value of critical-illness cover

The critical-illness market is once again the subject of debate, with providers and distributors discussing its future and position in the sales process.

The current market pos- ition is very different from two years ago, when some major providers ceased selling guaranteed critical illness and many reinsurers stopped providing guaranteed rates. The product was under scrutiny, with many models for future products being discussed, while premiums seemed to increase month on month.

Two years ago, therefore, guaranteed critical- illness cover seemed to be in decline and the critical-illness product in general due for a major overhaul.

In todays market, however, critical-illness cover is still very much alive and the pessimism has been replaced with cautious opti- mism. Although sales volumes have declined and some providers have pulled out, we are now seeing providers launching new guaranteed critical-illness pro- ducts, giving the market more capacity than before.

The pricing increases have slowed and rates were more stable in 2004.

However, the future of critical illness is still being debated. The ABI is reviewing the core and additional illness definitions, with changes likely later this year, and there is significant speculation over future product developments.

While we engage in discussing the future of critical-illness cover, we should not lose sight of the valuable protection it provides for those people unfortunate enough to have to claim. The total of critical-illness claims paid out by Legal & General since 2000 is over 190m. Our breakdown of claims in 2004 was:

l 64 per cent cancer.

l 16 per cent heart attack or coronary heart disease.

l 6 per cent multiple sclerosis.

l 5 per cent stroke.

l 9 per cent other.

Critical illness is therefore providing cover for the illnesses and diseases people fear and would like to be protected against. Policies are not bought because they cover areas such as loss of hearing, they are bought because of fears about cancer and heart attacks and it is these illnesses that make up the majority of claims.

With the average mortgage currently over 110,000, the figures below suggest clients have insufficient critical-illness protection to cover their mortgage and certainly not enough to cover their lifestyle and family.

l 25 per cent of claims were less than 25,000.

l 32 per cent of claims were between 25,000 and 50,000.

l 29 per cent of claims were between 50,000 and 100,000.

l 9 per cent of claims were between 100,000 and 150,000.

l 4 per cent of claims were over 150,000.

As the critical-illness market evolves and different models are discussed, we should not lose sight of the important cover that it provides. There is much that still needs to be done to ensure that clients are aware of and purchase enough of this valuable cover.

Although most of the discussion has focused on the availability of guaranteed rates, providing both guaranteed and reviewable rates gives the adviser the opportunity to personalise cover to clients needs, budgets and risk profiles.

Where we are looking to change the critical-illness model, we should remember that this product provides protection in large volumes for clients whose lives have changed dramatically.

With most parties accepting that some change is necessary, we must always focus on the needs of the customer and ensure that what we offer is appropriate, affordable and easy to understand.

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