Understanding SCIDEP
From 1 September, the new standardised SCIDEP definitions officially form part of all South African life insurance companies' marketing material and should appear on their websites.
The FSB and the Competition Commission have given the go-ahead to standardise certain disclosures to consumers regarding when critical illness products will pay out. The resulting SCIDEP critical illness initiative takes the form of a "disclosure grid" underpinned by standard medical definitions to which companies refer to when they make the required disclosures and when a claim is assessed. The grid and the definitions were developed by members of the Standardised Critical Illness Definitions Project (SCIDEP) committee.
Impact on the market
Given the complex nature of critical illness definitions and the difficulty of performing comparisons between these benefits, insurers should fully support this initiative. However, one should also be concerned that the extent and impact of SCIDEP is not fully understood. To base a decision on which critical illness benefit to buy on the SCIDEP definitions only, could be a serious mistake with serious consequences for clients and financial advisors alike.
SCIDEP requires that every critical illness benefit is benchmarked against a set of definitions for the four most common critical illnesses, namely cancer, heart attack, stroke and coronary artery bypass graft. It is important to bear the following two matters in mind:
* SCIDEP is NOT a set of standardised critical illness definitions, and companies are therefore not forced to change their current definitions.
* Critical illness benefits in the market may pay out for many severe conditions not covered by the SCIDEP definitions. Therefore, when comparing critical illness benefits in the market, SCIDEP, although it has definitely simplified this process, is not the only factor to be taken into account.
Outside the definitions
To illustrate this point, consider the following example. Momentum expects that their Elevated Comprehensive Critical Illness Benefit will pay approximately 25% of claim amounts outside of the SCIDEP definitions (based on international and local reinsurance data).
When considering the number of claim events, this difference is even more exaggerated, with between 30% and 40% of claim events lying outside of the SCIDEP definitions. This means that a client has a 30% to 40% chance of suffering from an illness that is not covered under the SCIDEP definitions. The impact that these conditions have on the client's lifestyle can be as significant as the four conditions covered in SCIDEP.
Examples of claims outside of SCIDEP definitions include 100% payments for various heart procedures, heart failure, Alzheimer's and Rheumatoid Arthritis and 25% payments for reversible stroke, numerous organ procedures and more. The claims criteria for these illnesses vary between life companies and some may not cover many of these illnesses.
The focus SCIDEP places on 100% payout levels also should not deviate from the fact that many clients may prefer a more cost-effective critical illness solution that pays in line with the severity of the critical illness condition.
Not the be-all-and-end-all
SCIDEP is therefore definitely not the "be-all-and-end-all" of critical illness comparisons. There are other factors than 100% payout levels to consider, including the "structure" of the benefit, how the "non-SCIDEP" definitions compare between different companies, and how the companies deal with changes to their benefits.
Although the introduction of the SCIDEP definitions will assist in some way to make comparisons between critical illness benefits easier, financial advisors may face significant advice risk if this is the only factor taken into account.
