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Quality of cover is now key issue for protection advice – McKenna

by: Ian McKenna, director at F&TRC
  • 16/11/2018
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Quality of cover is now key issue for protection advice – McKenna
The Insurance Distribution Directive (IDD) introduced on 1 October now requires anyone selling a life insurance policy, whether advised or non-advised, to carry out a suitability assessment.


Recommendations on price alone no longer meet regulatory requirements, so an adviser is going to need more than price comparisons to keep the Ombudsman happy.

So it is now wise for advisers to compare quality as well as price.

While the vast majority of life insurance claims are paid, approaching 95% for nearly all insurers, nothing is worse for an adviser than selling a contract that won’t pay out because of the small print.

When first marketed in the mid-1980s early critical illness contracts covered as few as six diseases.

Today, Vitality’s latest serious illness policy can cover over 200 conditions, however this involves a severity-based approach and not all conditions pay the full sum assured on all plans.

Most critical illness policies will include 50 or more conditions.

How can an adviser understand the difference between the various contracts and recommend the plan that is most suitable for the client?


Quality not quantity

Until about eighteen months ago insurers marketed plans based on who covered the most conditions. This is now recognised as a poor measure.

In practice, just three conditions – Cancer, Heart Attack and Stroke – account for in excess of 80% of claims.

Analysis F&TRC conducted in 2017 identified 99.8% of an insurer’s claims over a three-year period came from just 56 conditions, and continued analysis shows the result remaining broadly consistent.

A better measure of critical illness policies is now seen as how well the policy covers those conditions which are most likely to result in a claim during the policy term.

This incidence rate can vary significantly depending on the age, gender and policy term.

If a condition mainly affects people in their sixties but the policy only runs to 55 it is less important than conditions that occur sooner.

Equally, how likely is a policy wording going to actually lead to a pay-out, or is it written in such a way that would be virtually impossible for a claim for a particular condition to be paid?


Startling results

FTRC retains doctors and independent medical specialists to analyse incidence rates and constantly review insurers wordings to identify how likely they are to pay out for a given condition.

The results are startling.

For example, if we look at Coronary Angioplasty (a type of heart surgery), the best products achieve a 100% score of being likely to pay out from our doctors yet other insurers score as low as 25%, with others not covering the condition.

The new IDD and Financial Conduct Authority rules make it important for advisers to assess the quality of life insurance to add to price comparisons.

Very few advisers are medically qualified so getting help to assess policy wordings and incidence rates can produce recommendations best suited to clients’ needs and reduce firms’ regulatory risk.



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