This summer saw a change in government but many of the prevailing trends affecting the nations finances remain, including the ongoing cost of living crisis and a slow mortgage market.
Due to the intrinsic link between mortgages and the protection sector, and individual critical illness sales in particular, demand for this product also remains sluggish.
But as latest industry data indicates, customers appear to be more concerned with protecting their income over taking out cover to ensure a pay out for something that may never happen to them.
While there is evidence the over-40s appear to be onboard with critical illness, the role of the adviser in making all customers, no matter their age, see the value of this product has perhaps never been more important.
But it is also clear more flexibility and innovation in how this product is developed is also vital – particularly amid the regulator’s drive to ensure protection customers receive fair value.
No burning desire to buy CI
“Consumers don’t wake up with a burning desire to buy CI, or any other form of protection for that matter,” Justin Harper, chief marketing officer of LifeSearch, tells Health & Protection.
“But what’s on their mind and worrying them and what protection might appeal more, are all evolving.
“The pandemic and ongoing focus on costs of living, still loom large in the minds of consumers – with a greater concentration on the here and now, and everyday expenditure.
“Is there now greater appreciation among people to have money in their pockets to pay their bills, compared to the lottery effect of a big cash pay out for something like critical illness?”
And with the housing market struggling over last couple of years, Harper reveals while the advice firm is growing partly due to the fact it is not a mortgage-dominated firm, it has seen a fall across the wider protection market, with around 150,000 fewer new term policies in 2023 compared to 2022.
“With CI carrying a significant relative additional cost compared with just life cover, it may be seen by some as a stretch too far,” he adds.
Loosening link with mortgages
But there are signs that link could be loosening, according to Daren Boys, protection portfolio distribution director at Aviva.
“The critical illness market has fared relatively well in a challenging mortgage market,” Boys says.
“Over the past few years, we’ve seen standalone critical illness increase in popularity and a slight decline in the uptake of decreasing life and critical illness.
“This could suggest that critical illness sales are becoming less tied to the sales of a mortgage as the main reason for purchase.
“Encouragingly, over recent years we’ve also started to see a more healthy balance of income protection sales which is likely to be a contributing factor.”
Emphasis on prevention
This autumn, Johnny Timpson, who was a friend of the man responsible for the launch of the very first CI policy four decades ago in South Africa, Dr Marius Barnard, spoke of the need for the UK’s National Health Service need to pivot towards prevention of critical illnesses.
That emphasis on prevention features among the new Labour government’s key themes to get the NHS back on its feet.
But as customers age, the risk of critical illness increases – and it is a concern keenly felt by the over-40s, says Naomi Greatorex, owner of Heath Protection Solutions.
“We have a lot of clients in their 40s, and when talking about the benefits of critical illness, people reference personal experiences a lot – friends and colleagues who have been ill and struggled financially,” Greatorex says.
“But clients in their 30s seem more interested in income protection.
“We are finding a lot of our clients are requesting budget driven quotes for critical illness due to the costing of the cover.
“Also when talking to clients about critical illness, more of them are now taking cover to retirement or to a later age, rather than linking this cover to a mortgage debt.
“We talk in detail about the impact on the family of a parent suffering a critical illness, supporting our clients looking at this risk by talking about critical illness as a lump sum payment or an income payment.”
Regular reviews
But Alan Lakey, director at Highclere Financial Services and CIExpert, tells Health & Protection it is difficult to work out whether CI appeals more to certain demographics as providers are increasingly designing these plans with everybody in mind.
“Today’s plans are well designed with something for everybody,” Lakey says.
Critical illness cover, along with life insurance and income protection, are among the least complained about financial products.
However, Lakey highlights there is still something to learn from those complaints that are made.
“Many Financial Ombudsman Service (FOS) complaints relate to declined claims where the condition being claimed for is not part of the existing plan,” he says.
“This highlights the common sense of reviewing clients’ plans on a regular basis and offering the opportunity to upgrade and widen their cover.”
More specialist advisers in market
Key to reviewing plans is the adviser and thankfully, the market also benefits from an increasing number of specialist protection advisers, says Louise Colley, head of retail protection at Zurich.
“We now have a market where we benefit from the growth in the numbers of specialist protection advisers, well equipped to help customers select the right cover for themselves, as well as a range of support tools that advisers can use to inform their recommendations,” Colley says.
“Another positive development has been the continued growth of signposting – advisers who feel less confident in advising on protection can now much more easily refer customers to a specialist on a mutually beneficial basis.”
Indeed, Mike Farrell, protection sales and marketing director at LV=, tells Health & Protection the provider is seeing increased interest from some advisers who are looking to improve their skills when it comes to promoting protection.
“This can be linked back to the introduction of Consumer Duty,” Farrell explains.
“We’ve been running development sessions for advisers to help them initiate conversations around protection products specific to critical illness.”
And insurers typically also provide a range of tools to help advisers match cover to their clients’ needs.
Flexibility around exclusions
Additionally, a greater degree of flexibility around exclusions appears to have entered into the marketplace, with Lakey saying some underwriters and reinsurers are now willing to offer terms for conditions such as diabetes, a trend, he expects, is likely to continue.
Zurich’s Colley adds that many customers with pre-existing conditions can already get cover.
“The level of severity will inform any limitations here,” she continues.
“We’re seeing advances in medical science that insurers need to be alert to.
“Type 2 diabetes is an example of a condition that will have been historically challenging, but where cover is now readily available, and we will continue to see more changes like this, though inevitably there is a lag between new treatments and data that can prove their longer term efficacy.”
Flexibility and choice
And looking ahead in this brave new world of Consumer Duty and the FCA taking a harder line on fair value in the protection sector, customer flexibility and choice will continue to grow in importance.
“Flexibility and choice will be key in achieving fair value for customers and will likely be a continuing trend in the near future,” Colley concludes.
