This summer marked the 40th anniversary of the launch of the first ever critical illness (CI) policy in South Africa.
Four decades on in the UK, individual CI sales are being hit by the twin impact of a slowdown in the mortgage market and a continued cost of living crisis.
Advisers welcome innovation across the market through more flexible products and the use of overarching headings, but it appears they are at odds with insurers over how quickly these products need to evolve in future.
Shrinking market
“The protection market does align to the mortgage market to an extent, so with high interest rates and a slowing mortgage market we are also currently seeing a downward trend in customers purchasing decreasing critical illness cover,” Jonathan Cater, protection propositions development manager at Aviva, tells Health & Protection.
He adds the continuing cost of living crisis could also be having an impact.
“Customers may also look to take lower cover amounts on a level or standalone basis as part of a menu,” Cater continues.
“The overall volume of critical illness policies across the market is about 5% down on pre-Covid levels.”
This is echoed by Alan Knowles, co-managing director at Cura Financial Services, who acknowledges more customers are taking lower cover or not taking it at all due to cost of living pressures.
But Knowles adds his firm is also seeing more customers opting for income protection, which while “great in many ways” often means they have less budget left for critical illness cover.
In contrast, VitalityLife managing director Justin Taurog says the insurer has seen demand steadily grow for its serious illness products in recent years.
“At the same time, we are finding that people are taking out more tailored policies with more multi-benefit recommendations, including life cover, serious illness cover and income protection cover, than ever before,” Taurog says.
“People are also looking for more than just an insurance policy, but a product that can provide value from day one.”
That desire for obtaining the best value possible is now an even more vital part of the market in the current environment.
Emma Thomson, head of protection development at Sesame Bankhall Group, maintains both consumers and advisers are looking for good value coverage with flexibility.
“The cost of living crisis means budgets are stretched, so advisers are working hard to meet client needs while at the same time ensuring they find good value for money cover,” Thomson says.
“There is a good range of choice on offer from insurers in terms of different levels of cover, which helps advisers to find solutions to meet a range of budgets.”
ABI triennial review
Last year the Association of British Insurers (ABI) issued its review of Minimum Standards for CI cover and in April released its response to the feedback on the standards.
The trade body made two clarifications to improve understanding of the changes around less severe heart injuries and which classification system is appropriate for a specific type of cancer.
“The guide gives a minimum standard of offering to help give consumers confidence in the quality of cover on a critical illness policy” Aviva’s Cater points out.
“It also provides a guide for any new provider wanting to join the market.
“Product innovation is always welcome. After becoming the first provider to offer an enhanced child critical illness product back in late 2016, we now have a market where all providers either offer a similar product or have elements of that cover included as standard within their products.
“Innovation and development pushes providers to review their products. Having diverse options across the market is a positive for customers allowing them to tailor their cover to their needs.”
Likewise, Julie Godley, director of intermediary at Legal & General Retail, agrees the ABI’s triennial review has made “small but meaningful” revisions to the definitions of common illnesses, including cancer.
“It is another step towards improving customer outcomes and providing greater clarity in the event of a claim,” Godley continues.
“When it comes to product innovation, providers should explore changes which allow them to offer greater value and relevance to customers. This is particularly important in the context of the cost of living crisis.
“When incomes are stretched thin, people are more likely to scrutinise the value a product offers
“A strong cancer definition is important, but where clients have budget restrictions, they should have options so that they end up with suitable cover that best reflects their individual circumstances and concerns.”
Product development driver
Aside from the changes introduced by the review, it also acts as driver for insurers to take a wider look at their product offering and definitions.
“Coming shortly after the implementation of Consumer Duty, it’s good to see improvements coming through in the form of product design as well as clearer wording to help customers better understand when they can claim on their critical illness policy,” says Jacqui Gillies, marketing and proposition director at Guardian.
As Jennifer Gilchrist, protection expert at Royal London, adds: “Innovation comes from understanding whether the ABI changes create opportunities and keeping on top of medical science and developments so we continue to adapt for the future.”
Alan Lakey, director at CI Expert, notes not all providers have adopted the ABI changes yet, but agrees they can be a trigger for further development.
And there is other product innovation ongoing in the market.
“Zurich has followed AIG by using overarching headings that include conditions which previously stood alone,” Lakey adds.
“This is an example of outcome-based wordings rather than a named condition being a claim requirement. This trend is bound to spread and this will result in claims being paid that previously would have suffered a declinature.”
‘Enriched customer conversations’
Katy Davies, specialist protection adviser at Henry Dannell, tells Health & Protection current product innovations have enriched customer conversations about CI cover.
“As opposed to being a pot of cover needed in the event of serious illness – which in many cases is crucial in itself – it is support to help with those illnesses and provide benefits in addition to the monetary value,” Davies says.
“The cost of CI is reflective of the fact the risk of illness is higher than that of death and with the flexible options and additional benefits now integrated in the policy, the client can see the value, rather than the price hike vs their life cover.”
For Justin Harper, protection development director at LifeSearch, recent developments with more adaptability of offering from the likes of Zurich and AIG have proven a “welcome and positive” move.
“It helps ensure coverage is more relevant – not just at outset, but as life goes on too,” he says.
“With Consumer Duty and focus on value, it’s a real positive to see customers only paying for what they need. Turn on-and-off-ability is a good thing.
“When it comes to child cover, again it’s welcome to see greater choice and flexibility for customers who have, or who are expecting, or who no longer have children.
“Yet we question why it should always be a bolt on, only available with an adult policy and the ever-increasing maximum levels of children’s cover feel inappropriately high and the wrong thing to compete on.
“Does a different approach such as the MetLife innovation offer a different and more relevant option for customers and advisers alike? This would really test the stubborn adherence to overly well-established practices for building recommendations and the provider selection process.”
Mental health
One subject rarely discussed with critical illness products is mental health coverage, but as the importance of the issue rises it is becoming a more important factor.
“When it comes to mental health, we are impressed to see how additional and rehab services can really help customers with critical conditions, providing that more practical emotional support above and beyond the financial claim payment,” Harper continues.
“Otherwise, critical illness really isn’t the right product to provide mental health coverage.”
Joanna Streames, owner of Velvet Mortgage and Insure Services, agrees telling Health & Protection that mental health innovations and offerings have definitely made an impact in the market.
Though Streames adds a word of caution.
“The problem is that these offerings are only effective when the advisers take them onboard and have belief in the finer details,” she says.
“There is a low take-up for some great included benefits such as counselling and nutrition service and this is mainly due to a lack of knowledge of the details of the offering and how it can be accessed.”
Rip it up and start again?
But in the year the industry celebrated 40 years since the launch of the first CI policy, it appears the industry is at odds over how fast the pace of change should be in terms of the evolution of this product as it heads into its next 40 years.
“Critical Illness is in a good place in terms of customer outcomes, so we need to resist tinkering for the sake of it,” Gilchrist says.
“However, we need to keep an eye on changes in medical science and medical data that allows us to drive CI’s development and keep it relevant for customers in the future.”
Although Harper goes further, claiming CI cover needs a “fundamental overhaul”.
“In fact, we could just start over again,” he adds.
“With medical advances and the pace of change, the original premise of ‘dread disease cover’ is no longer such a black and white issue and there are an ever-increasing number of shades of grey.
“We should consider building new a set of propositions, rather than forever tinkering with and attempting to future-fit the old ones.
“Start with a blank sheet of paper and focus on really understanding and responding to the consumer needs.”