Simplifying critical illness insurance
Critical Illness (CI) cover, a concept originally developed in South Africa, continues to grow successfully despite the increasing complexity in the local market.
The factors that are driving complexity include the lack of standardised definitions for the various events covered, the consumers' difficulty in fully understanding most of the medical information and terminology included in the policy, as well as the pressure placed on insurers to increase the number of CI events that are covered.
"At the moment each life insurance company generally develops bespoke or varied CI products, often utilising their own terminology to describe the events covered in the policy," says John Rutherford, Research and Development Manager at RGA Reinsurance Company of South Africa. "There is a real need to find a simpler approach to CI in the market. Complex products mean that brokers will tend to rely on product rating systems to identify the most comprehensive product for the customer. While this is understandable, it might not always lead to the most appropriate product for the consumer."
Impact on clients
According to Rutherford, the increasing complexity of benefit structures, such as tiered and non-tiered designs and the varying event definitions for illnesses, such as cancer and heart attacks makes CI product comparisons extremely complex for prospective clients.
The need to standardise event definitions extends past ensuring affordability, as most policies cover between 30 and 50 various CI events, with some covering even more. "The issue arises when the core events, like cancer, heart attacks and strokes make up only 10% or less of the list of events covered in the contract, but account for over 80% of total claim amounts paid," says Rutherford. "This means that minor events constitute 90% of the contract, which causes confusion for policyholders, due to their lack of understanding of what medical conditions are actually included."
Standardised CI definitions
"In the UK the Association of British Insurers (ABI) has developed standardised CI definitions that can be used by its members. Such an approach makes product comparisons much simpler for the consumer, for example, events such as ‘cancer' mean the same thing across various insurers. The UK market is therefore driven more by price rather than complexity," continues Rutherford.
"This doesn't mean less innovation," asserts Rutherford. "It simply ensures the core coverage is consistent and understandable. The products are differentiated not just by price, but also by non-core elements such as riders, options and benefit structures."
New generation of products
Discussions in the industry around standardising definitions and simplifying critical illness have been, and will continue to take place. Whether this will lead to a new generation of simpler products is unclear at this point in time. "The discussions are certainly important and the debate is healthy," says Rutherford, "CI is an important insurance product, as it meets very specific insurable needs for potential customers and can therefore be a very attractive insurance solution for consumers. By simplifying the product, CI cover can only become more understandable and more affordable."
