Evolution of protection insurance

In the critical illness market there has been something of a conditions race, despite attempts to simplify the market.

One policy might say it covers 52 conditions and another 59. But within all CI policies the three core conditions are still cancer, heart attack and stroke.

Alan Lakey, director at Highclere Financial Services and CI Expert founder, says: “Over the years it has become standard to use a list of conditions to highlight the value of a plan. The drawback is that most policyholders will never have heard of many conditions, such as Devic’s disease, so the extent of the coverage may not be realised.”

And it is not just clients who find critical illness insurance confusing, advisers do as well.

“There are so many differences between insurance companies’ contracts and this can be daunting. …….clients find critical illness wording confusing, with there still being a lot of detail regarding quality of contract and definitions to consider,” says, Naomi Greatorex, managing director of Health Protection Solutions.

She adds the complexity of critical illness contracts has been made simpler by CI Expert which provides a platform that allows the adviser to compare both historical and current critical illness contracts, and compare definitions and their quality.

Kathryn Knowles, managing director at Cura Financial Services, says: “We now have many providers offering core/basic cover and then enhanced cover. You can now sometimes choose whether or not children’s cover is included.

“Each of these options can be beneficial for a client, but it does mean that there are even more areas that advisers need to consider when making advice. Is Insurer X’s basic policy, the same as Insurer Y’s basic or is closer to their enhanced cover? Do I add on children’s critical illness cover now as the clients don’t have children but are planning a family in the future? There are good arguments for yes and no on this.”

Simplification or not

Paul Yates, product strategy director at iPipeline, says the race to add more conditions still exists, though notably some providers are trying to step away from this and focus on outcomes. 

Mr Yates adds: “The definitions of a claimable event under a condition can also vary between providers which creates further challenges when trying to evaluate one provider versus another. The industry also needs to improve the number of customers offered terms without the need for manual intervention, for example, medical evidence.”

Mr Lakey says the recent developments at AIG is an example of how critical illness definitions have been simplified.  

The insurer has simplified its critical illness (CI) cover by consolidating some conditions under four categories. The plan relies on umbrella headings rather than listing conditions.  

“A good example is ‘degenerative neurological disorders’,” Mr Lakey says.

“This umbrella heading incorporates many existing conditions such as dementia, multiple system atrophy, motor neurone disease, but the wording enables claims for many rarer but nonetheless permanently debilitating illnesses such as various ataxia’s, Rett syndrome and Alper’s disease.

“The challenge is to simplify a product which by its nature has to use medical terms and is unexciting for consumers to read about.”

Advisers have also commended a number of other providers for developments they have undertaken.

Scottish Widows introduced a body concept back in January where rather than a long list of conditions they based the plan description on sub-categories such as ‘heart & arteries’, ‘brain & neurological’.  

Other insurers such as Aviva have combined stroke and spinal cord stroke, traumatic brain injury and hypoxia/anoxia.

Ms Knowles says Guardian also has a really good definition for heart attack. 

“Most firms say heart attack of a specified severity, which will mean the troponin levels in the blood must reach a certain reading for the claim to be paid. Guardian just have the definition ‘heart attack’, there is no severity stated.”

Ms Knowles also cites changes that Vitality has made.

She adds: “We would really welcome more insurers doing what Vitality can do, which is to exclude certain groups of conditions for a client with a related risk, rather than just deny a claim. 

“For example, why if someone has had a recent heart attack, can they not get critical illness cover with heart conditions excluded? They have the same risk as anyone else for getting cancer and it is a shame if they are seeing barriers to protecting themselves and their family.”

Ms Greatorex says changes to some of the top definitions have been really helpful, for example taking away the restrictions around conditions such as Multiple Sclerosis (MS). 

“In historical contracts there was a requirement for six months of symptoms, then three,” explains Ms Greatorex.

“Now we are seeing the wording change to a diagnosis and symptom based, rather than a minimum amount of months.

"Changes like these are really positive and help advisers feel confident in the contract they are recommending, and help the customer in getting their claim paid earlier.”

CI challenges

Despite what looks like efforts to simplify critical illness cover, Ms Knowles says there are still challenges for advisers when it comes to selling critical illness cover.

“I don’t think many of the changes have made the cover easier to sell for advisers,” she says. 

“Changes in the contracts are generally beneficial in regards to what is covered and the improvement of definitions for making a claim. This doesn’t make it easier for advisers though, we are still faced with the same difficulty of firstly getting a client to understand the importance of critical illness cover, and then getting them to accept the price of the policy.”

Scott Cadger, head of protection underwriting, claims and commercial strategy at Scottish Widows acknowledges the critical illness market is still complex, with a variety of cover available from a large number of providers, even within the providers themselves.  

“CI products are difficult as they require a severity to be met to determine payment,” says Mr Cadger.  

“Recent innovations have been both around simplifying wording but more importantly an increasing focus on how the cover is explained to customers, whether through visual aids or the rise of CI comparison tools for advisers.”

Underwriting outlook

As underwriting methods try to keep up with changing needs it will be a continual process of both refinement and evolution, although Covid-19 has made providers very cautious.

Mr Yates says: “Providers are looking at how artificial intelliegence (AI) and alternate data sources can be used to shorten yet enrich the underwriting process while still providing competitive outcomes. 

“Underwriting philosophies are being continually refined based on experience and an evolving understanding of risk, and are increasingly using alternative sources of medical detail than just the traditional GP Report where further information is required.”

Technology has certainly impacted the take-up of protection cover.

As the risk landscape is evolving rapidly, insurers are responding proactively. As a result, they are taking a more holistic approach to customer risk management, providing policyholders with value-added services, according to a report published last year by Capgemini.

It added: “As industry players evolve from payer to partner and preventer, life insurance companies are increasingly exploring initiatives to monitor, manage, and improve customers’ health, not just paying claims upon illness or death."

Other key drivers of these technological developments are:

The growing popularity of wearables and health-tracking devices has led to increased collection and availability of policyholder data

Customers are also willing to share additional information with their insurers and pay extra for personalised risk control and prevention services

The slow market for traditional life insurance products makes value-added service and wellness products a critical priority for insurers to reinvigorate premiums.

Insurers are also leveraging analytics and artificial intelligence (AI) to enhance the underwriting process.

Underwriting upgrade

Improvements to underwriting rules which give instant acceptance means that more people can buy straight away without manual underwriting.

This will appeal to many customers, as the longer the time until acceptance, the greater the customer drop off rate due to the customer losing interest.

Paul Yates, product strategy director at iPipeline UK says: “Technology has made the process of writing protection faster and easier. 

“It has also, at the provider end, enabled significant improvements in products – both from extension of propositions and product quality – while retaining productivity (and hence prices). 

“This has meant we have seen growth in protection sales as a result of more advisers writing protection for more people. It has also led to growth in the spread of products sold, multi-benefit sales almost doubling in the last 30 months and income protection sales also doubling in the same period.”

Scott Cadger, head of protection underwriting, claims and commercial strategy at Scottish Widows says a  lot of new technology has entered the market in the last few years, aiming to support a more rounded decision-making process at point of purchase, whether that be a more informed underwriting decision or understanding the best combination of multiple benefits from providers. 

“It has helped to support firms that operate in a more real-time environment, being able to provide customers with a full set of options as the conversation flows,” adds Mr Cadger.

Medical record delays

Despite the improvements Covid-19 has thrown up some challenges, namely the delay advisers and clients have experienced in obtaining medical records from GPs.

Ian McKenna, founder of FTRC, suggests one way to reduce the reliance on information from the GP is for advisers to proactively encourage clients themselves to get copies of their medical records in advance of applying for cover and to also check them to make sure there are no errors.

This could make things less cumbersome when the advisers are liaising with the insurers on behalf of their client.

Mr McKenna says: “It could be easier to access information electronically but we have not yet gotten to that stage. There has not been a level of agreement between the medical and insurance profession on how to do this on a consistent basis, however it is inevitable that more and more patients will start wanting to hold their own medical records. 

“Already, if you want, you can hold a copy of your medical records so if you are ever in an accident, the paramedic can access your medical records, which is actually a very sensible thing to do and I think we will get to a situation in very few years where that is the norm for most people. There are certainly positive signs on the horizon but we are not quite there yet.”

Roy McLoughlin says another technology can help with take-up of cover is increased transparency so people can see and be reminded of what they are covered for - using the pensions and investments sector to illustrate his point.

“On pensions and investments, every company I deal with sends customers an annual statement," Mr McLoughlin says.

“If you take out a pension the pensions company will send you all the information you need.”

Mind the rental gap

Amid all these improvements there is still a group of people which the protection market continues to struggle to attract and that is renters. 

The rental community is particularly exposed when it comes to being at risk of eviction if they are unable to pay their rent because they cannot work.

They have no equity and arguably have less room to negotiate with a landlord than a homeowner would with their lender where they fell into mortgage arrears.

It is estimated that around 35 per cent of all consumers, both homeowners and renters, have some form of protection insurance, either individually or through their employer. 

When it comes to renters, only 18 per cent of them say they have some protection insurance in place. This is broken down as 7 per cent relating to individual protection, and 11 per cent through their employer, according to figures from actuarial firm Hymans Robertson.

Its study, published last year, also found that only 8 per cent of consumers are being informed about potential products as part of the rental process: “Clearly on its own this is a concerning position, and when we split the respondents by age we see less awareness among older generations, with only 2 per cent being informed about income protection.”

But some advisers are employing new methods to try and reach renters - particularly those that use social media.

Mr McKenna says he has seen an increasing number of new generation advisers - predominantly young IFAs - who are using social media in a very “different way” to talk to customers.

“They are making short sharp videos which they put out on social media which speak very authentically to the customer. There’s a protection gap already but in the rental committee it is more than ever,” says Mr McKenna.

“Technology can be used to reach that audience and if that audience is substantially younger people, the question [to ask] is; what is the mechanism through which younger people assimilate information?

“That’s why social media [is a very good tool]."

Mr Yates says iPipeline is committed to enabling 'Generation Rent' – those most in need of protection – to be protected. 

He adds: “Renting is an intent-based moment and is increasingly transacted digitally. We not only have the ability to deliver nudges in the rental process, but we can also streamline the full protection acquisition process to fit within the faster and more frequent rental process. 

“Technology can also be used to gear processes that meet the various needs of renter cohorts, which are very different.”