The Association of British Insurers (ABI) has published the final version of its guidance on reviewable rate protection insurance following an initial consultation paper in May 2005.
The guidance aims to ensure consumers are better informed when buying a policy, keep the product viable in the marketplace and reduce the risk of insurers not complying with the Unfair Terms in Consumer Contracts Regulations (UTCCRs) 1999.
The initial consultation paper in May 2005 followed discussions between the ABI, Financial Ombudsman Scheme (Fos) and industry representatives in October 2003 when the Fos raised concerns some reviewable rate critical illness (CI) policies were not complying with the UTCCRs and were not fair and reasonable.
The guidance says the ABI advice, together with insurers’ own processes, should mean consumers get:
- A clear explanation of why the reviewable premium product is appropriate, how the review process works and, if applicable, why they might choose reviewable rather than guaranteed premiums;
- Increases or decreases which are calculated fairly when insurers review premiums;
- Continued availability of reviewable rate products;
- The ability to buy valuable protection at a lower initial price than may apply to similar cover with guaranteed premiums; and
- Access to new types of protection which insurers might not otherwise be prepared to offer.
The guidance gives general advice for long-term protection policies, covering the primary targets for improvement and illustrative quotes, key facts documents and policy wordings for CI.
For example, it says insurers should consider the following general principles for reviewable premium contracts:
- Insurers should base reviewable premiums using values for their pricing assumptions which they believe are applicable for the full term of the policy;
- The values of the assumptions on which the premiums are based should be reviewed regularly;
- The values for assumptions used for in-force business should be consistent with those used for new business with justifiable grounds for any differences;
- At reviews, premium increases can only be made if there is a valid reason stated in the policy for changing the value of one or more of the assumptions which affect the premium; and
- At reviews, insurers should not aim to recoup earlier losses. When a premium changes as a result of a valid reason relating to an increase in the expected incidence of future claims, it should be made clear this does not relate to the claims experience of the individual policyholder but to the general claims experience for similar policies.
Nick Kirwan, chairman of the ABI’s Protection Committee, says: “Reviewable rate policies give consumers additional choice and value for money in the protection insurance market. However, it is important that people are very clear about the nature of the product when they consider buying such a policy. The ABI’s advice should ensure that consumers are better informed and that the product remains viable in the marketplace.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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