KISS! Stripping complexity from critical illness insurance

The Life Offices’ Association (LOA) has been fairly quiet since its June decision to merge with the Association of Collective Investments, the Investment Management Association of SA and the Linked Investment Service Providers Association to form a new fi

“The LOA is of the view that standardised disclosure facilitates competition, as it enables consumers who do not have a technical understanding of medical conditions and definitions to make a meaningful comparison between the various products on offer and to select one that is appropriate to their needs,” said Joubert, expressing concern that the Competition Commission might see the move as anti-competitive. FAnews Online would be extremely disappointed if the Competition Commission viewed the proposal in this light. The Commission has perhaps overstepped its mandate through recent interventions in the medical industry and we’d hate to see it do the same with insurance.

Following international best practice

The concept of standardised critical illness definition is not unique to South Africa. Other countries around the world have already implemented them, including the UK, Singapore and Malaysia. Joubert pointed out that China and South Korea were also engaged in the process. But the system that the LOA proposes for South Africa differs slightly from the international benchmarks.

Individual life insurance companies will not be forced to make any changes to their existing products or pricing structures. They will be forced to disclose the events that will trigger a payout “with reference to the industry standard disclosure grid” mentioned in the introduction. This grid will be underpinned by standard medical conditions. Insurers will also have to clearly indicate what percentage of the payout amount will apply for different levels of illness and disability.

Joubert says: “Since the level of severity of the illness or trauma determines how much of the policy benefit is paid to the policyholder, the new definitions must be linked to four tiers of severity (A, B, C, and D), with A being the most severe and D being the least severe. For each tier the life insurer needs to disclose what percentage of the benefit will be payable.”

How simple English could save thousands

Financial intermediaries have been calling for the standardisation and simplification of conditions and exclusions on critical illness insurance products for years now. They will no doubt welcome the LOA’s latest proposal – as will policyholders and the Long-Term Insurance Ombudsman. What remains to be seen is how successful the life assurance companies will be in ‘dumbing down’ their policy language.

Joubert notes that the nature of critical illness insurance products makes it impossible to simplify them completely. These products are designed to cater for complex, uncertain and unpredictable events. But we acknowledge that the absence of standard industry disclosures and definitions increases this complexity and uncertainty.” To this end the LOA has established a Standardised Critical Illness Definitions Project (SCIDEP) Committee to begin the difficult task of formulating “a set of standard industry disclosures, underpinned by standard medical definitions to which companies will have to refer when they make the required disclosures!

Victory for this committee would be a single, easy to understand disclosure grid which would appear with all critical illness insurance policy wordings. And it would be even better if this ‘grid’ could be read standalone, without any ifs, buts, maybes and exclusions hidden in the policy wording.

Editor’s thoughts:
When it comes to financial services products, consumers appreciate transparency. They want to know what they’re getting (the cover) and what they’re paying (the premium). Nowadays they also want to know what fees and commissions are built into the premium – but we’ll save that for another topic. We’d love to hear what you think about the implementation of a standardised disclosure grid. Add your comments below, or send them to gareth@fanews.co.za