A new type of mortgage-linked critical illness policy could be designed to tackle the growing number of CI claims, which offers a smaller payout in the early stages of treatment and is linked to the severity of an individual's illness.
Speaking recently at a marketing conference in London, Azim Dinani, head of pricing at the GE Frankona Re (UK Life and Health) suggested the growing pressures on critical illness pricing and supply, as well as advances in medical science and knowledge, could encourage companies to develop a new form of CI policy which pays a fraction of the lump sum at the first stage of a claim and offers additional payments linked to a client’s mortgage if the individual is still unable to return to work a few months later.
Rather than pay a substantial lump sum – dependant on the policy terms – GE Frankona Re proposes changing the form of CI policies to look more like a crossbreed of CI and income protection plans offering regular benefits in long-term disability.
In particular, Dinani proposes clients could set flexible terms on a policy which would provide 25% of the total lump sum payout, to help the individual recover from any condition defined on their policy.
If individuals are still ill after three months, Dinani proposes the policy could pay any mortgage interest.
If the client is still disabled after two years, a CI policy could effectively pay off the individual’s mortgage, suggests Dinani, as they are unlikely to return to work.
“Critical illness has been exceptionally successful in the last decade and that is likely to continue, but there are certain areas people are concerned about,” says Dinani.
“Many policies are sold on the back of the need for mortgage protection, so my proposal is to design a product which pays 25% of the lump sum to allow the individual to take time off work for rehabilitation, followed by additional payments if needed.
“A lot would depend on how the product is designed but if we are not paying out the full lump sum on any event, we can begin to offer consumers a better deal on their premiums,” adds Dinani.
Proposals to reform CI design have been tabled in response to medical advances such as angioplasty which were in the past regarded as serious enough treatments to be eligible for a CI payout.
These days, however, angioplasty patients can make a full recovery within 2-3 weeks and is no longer regarded as some firms as a critical illness, yet the number of policies still carrying these terms has substantially increased the cost of product purchase for the consumer and claims for the provider.
Further medical developments in cancer screening have also substantially increased the likelihood of greater claims on conditions such as bowel, breast, cervical and prostate cancer, adds Dinani.
Changes may need to be made to CI policy design to accommodate the likelihood of higher and much earlier claims in bowel, breast, cervical and prostate cancer, says Dinani, as a government pilot study is already under way to assess whether bowel cancer can be detected at an earlier stage.
If widespread bowel cancer screening is then rolled out across the entire population – in the same way screening for breast cancer has developed – the potential for claims against existing policies could climb so fast it would affect CI costs for both protection providers and policyholders.
“Screening different types of illnesses is a particular issue for CI products because if more screening is done, we have more people eligible for claims,” says Dinani.
“The government is doing a pilot study on bowel cancer screening, but if that screening is done on the whole population, as has been suggested, we would find a lot of people who have the right to make a claim who would otherwise not have known about any problem for many more years,” he adds.IFAonline
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