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Would retrospection be step in wrong direction?

Nicola York says the critical-illness industry is split in two on applying policy enhancements to existing customers.

Protection experts have been calling for improvements to critical-illness policies to be applied retrospectively to existing customers in a bid to boost trust in the industry.

Direct Life & Pensions sales & marketing director Richard Verdin and Lifesearch head of protection strategy Kevin Carr are calling for providers to extend policy enhancements, such as the addition of new conditions, to existing customers.

Some product providers such as Bright Grey and Bupa are backing the proposals but others including Standard Life are not convinced that such a move would make any difference to consumers.

But it is not just providers who object to such a change being made. John Joseph Financial Services principal John Joseph protests that applying changes retrospectively to CI policies would kill the industry.

Below, Joseph outlines why he feels so strongly that retrospective changes should not be made while Verdin puts forward his arguments as to why providers should do this.

John Joseph, principal, John Joseph Financial Services


Let us start with the premise that insurance actuaries who work out the costs of a life policy are bookmakers with a bit of spit and polish. They look at a group of individuals and calculate how many will be on the wrong boat, plane or train on any given day, how many are likely to suffer an illness and how many will die a natural death.

All this flies straight out the window when medical science discovers that whereas 10 years ago it was difficult to diagnose prostate cancer and us men used to die with it, not from it, nowadays apparently all we need to do is pee in a bottle, stick in a piece of litmus paper and, lo and behold, the PSA count shows whether we have prostate cancer. It is now such a refined test that it has its own score and, trust me, you do not want the high one.

The problem is that some critical-illness companies costed some illnesses into the pricing of the original policy, based on the incidence of scientific detection at the time, and to make the policies as cheap as possible (that was us IFAs asking for the most illnesses at the lowest cost) they left a small margin for improvement but not enough to keep making retrospective enhancements to the cover.

I, too, have a problem when I know some of the more recent policies are much wider in cover but some of the older policies have very advantageous wording on their definitions. Far be it for me to teach all you IFAs to suck eggs but if your clients want to “improve” their range of cover, then can I suggest you evaluate exactly what “improvement” you would be providing and sell them a small additional policy.

In a recent article on Money Marketing Online headlined, Retrospection is what you need, Nicola York used the example of aplastic anaemia, which as we all know is bone marrow disease.

All companies will pay out on undergoing a bone marrow transplant, some bring forward that payment to being placed on the waiting list for a bone marrow transplant and now others have stated that they will pay out when it is diagnosed.

All that is happening is that the payment is being brought forward by an unknown period of time but that is a cost to the insurance company which was never intended, nor accounted for.

So, to close my argument, yes, I want the widest cover for my clients and if that is achieved by adding extra cover via a new policy, then so be it.

If companies have priced future-proofing into their products, I am delighted but I do not want a pressure group creating a holier than thou environment in the critical-illness field.

Richard Verdin, sales and marketing director, Direct Life & Pensions

I believe that for critical-illness cover to survive, it has to be managed carefully and in a way that makes sense to those who have already bought the cover and those who may buy the cover in the future.

Trust and transparency are the twin keys to unlock the potential that exists in the protection market. Certainly, we have a lot of lost ground to make up during the course of this year and perhaps it is time that instead of trumpeting not so bad news, we should be looking to give some really good news.

A few weeks ago, I watched Watchdog and, for the first time, instead of feeling that the report did an injustice to our industry, I felt appalled. Appalled at an industry that appeared to want to shirk its responsibility and appalled that someone ticking a box on a claim form had to be informed that the critical illness they were claiming for had been reserved for brand new customers only.

It does not matter to me that from an actuarial or pricing perspective it has to be like this, so that insurers and reinsurers can consistently profit from the sale of the product. That view is short-sighted and driven more by annual bonuses than the true principles that lead to the development of insurance products and what was once a highly regarded industry.

In recent years, the marketing messages pushed out by insurers have been along the lines of: “We cover a longer list of illnesses (for new customers) than they do …” Well, as an IFA, I never asked for that. I wanted something reliable and trustworthy. Frankly, I just do not feel that, so many years after Dr Marius Barnard had such a good idea, that is what we now have.

Lessons we are learning today were learned 10 years ago by some of the traditional providers in the mortgage industry. They too initially fought hard against what they saw as a value-destroying proposition, yet eventually they found a way to treat existing customers as well as they treat new customers. Surely it is not beyond the wit of insurance people to come up with a solution that could generate the goodwill that could flow from such a change for our customers?

Adding positive changes to policies retrospectively could work something like this. If it is a small change – one that extends the list of illnesses covered (for marketing purposes) but realistically few, if any, claims are anticipated – then why not simply add it to all existing policies and send a positive note to the customer on the next anniversary of the policy commencement date?

If the additional cover cannot be afforded by the insurer within the existing premium, offer it to all existing customers at a top-up price. Those who value it take it, those who do not will know that they chose not to take the cover. Sure, I can see why time limits for applying for the top-up and moratoriums may be required but it is a hell of a lot better than the alternative.

I can already hear product managers and actuaries moaning about multiple reinsurance treaties, business cases and systems but do not let the tail wag the dog. Complex financial structures and antiquated systems that you have not bothered to replace are not understood by consumers.

So abseil down your ivory towers and ride to the rescue of a product that is itself suffering from a condition that could see it expire soon.

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