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Advisers should be looking for longer-term solutions and to give their clients the best value for money cover they can afford when considering critical illness or serious illness cover, says Vitality director of strategic partnerships Andy Philo.
And in this Q&A he urges intermediaries to ensure their recommendations meet how illness and treatment have evolved since the protection products were launched.
- How would you describe the critical illness and serious illness cover market in the UK at present in terms of sales?
We’ve seen market growth in standalone critical illness (CI), which is probably down to the sale of more multi-benefit menu plans, helping advisers to find more value from each client interaction.
Overall though, compared to how important and relevant the product is, there’s more work to do on increasing sales and improving awareness, both among consumers and the wider adviser community.
From Vitality’s perspective, we simplified and enhanced our proposition last year after listening to adviser feedback and we’ve seen our sales increasing as a result, which is really pleasing.
I think the growing focus on quality, particularly with the introduction of Consumer Duty, as well as questions over what the future of products look like also presents a big opportunity for the industry.
- How has the market evolved over the years to get to this point?
Since the introduction of critical illness cover 40 years ago, the product hasn’t fundamentally changed a great deal. The focus is still on paying out for a listed condition and although additional payment conditions have been introduced, these are largely driven by competitive pressure and are often capped.
Also, the focus has been on how much is payable rather than on covering the right conditions.
At Vitality, we launched Serious Illness Cover with an emphasis more on the severity and impact of a condition, as well as the breadth of coverage; I believe that’s what many consumers would want.
There’s been an increased focus on children’s cover as well and it’s been positive to see more insurers follow Vitality in offering children’s cover as an entirely stand-alone benefit. Plus, we’ve seen a growing number of added-value benefits, which are welcome.
- Do the products available meet customer needs sufficiently?
From Vitality’s perspective, we’ve always focused on developing innovative cover that meets the changing needs of clients.
Most notably, the nature of illness has changed since the introduction of critical illness plans. People are now surviving what would have once been life-threatening conditions, thanks to medical improvements.
However, there’s an increased likelihood someone will suffer a secondary illness; the National Cancer Institute of America found one in five cancers are recurrences, and the American Heart Association added that one in five people having a heart attack are likely to have their second one within five years.
There is also a greater exposure to later life conditions. For example Alzheimer’s Research UK highlights the number of dementia sufferers is likely to double in under 20 years, which is frightening, and CI policies generally don’t cover people at that stage of life.
The traditional critical illness market is still very focused on 100% all or nothing payouts for big conditions. There are some additional payouts and that’s positive, but those are only useful if you don’t claim for a full pay-out first.
As it stands for most clients, if you have a 100% payout under a critical illness policy, then you’re unfortunately normally left without cover.
All this is why we designed Serious Illness Cover in the way we have. For me, it’s about offering the broadest cover available, with an amount linked to the severity; to allow clients to claim multiple times if their condition deteriorates or potentially claim again in full if they get something else.
Also its important for that cover to continue later in life for any care needs that may arise.
Consumers understand and expect this. Outside of life cover, it’s the only insurance product I can think of that when you get a payout, it ends – that can’t be right.
- What are the key points driving purchasing decisions from consumers and advisers at present?
For advisers, the focus is still very much on covering a mortgage, whether the initial mortgage or re-mortgage. This is backed up by CIExpert’s Critical Thinking report which revealed that 81% of advisers use the mortgage as the reason to speak to clients.
Interestingly, that report also found most clients don’t use a payout from CI or SIC to pay off their mortgage. Many also use it to fund private medical treatment or provide a fund they can dip into to cover living expenses.
In the market, there’s also still too much focus on price being the main factor driving purchasing decisions. As an industry, we still have work to do to shift the emphasis onto quality and value, and away from offering the cheapest cover available.
Absolutely a product must be affordable over the entire term, however offering the right product with the most comprehensive cover – and therefore more likely to pay out – within budget has got to be the best solution for a client.
- What do you see as being the key needs for customers that insurers will need to address over the next decade?
Given that the UK is not getting healthier and the Health Foundation predicts there will be nine million people in the UK living with poor health by 2040, covering a client over 20, 30, 40 years, or even the whole of their life, while helping them to stay healthy and ultimately reduce their risk of claiming is a direction the market must surely move towards.
We are inevitably going to see an increase in later life illnesses, which mean insurers and advisers will be naturally drawn towards protecting clients beyond just an immediate need, especially given one of the cross cutting rules under Consumer Duty is to ‘avoid foreseeable harm’.
At the end of the day, there is a huge opportunity for advisers to consider how insurers are developing products to insure against these risks and to add significant value to the conversations they are having with clients, now and in the future.