Newsletter SCOR Global Life
Product trends to high complexity and diversity
Transparency by definition standardization
After crossing the South African border, Critical Illness insurance undertook a number of developments.
The product adapted to the local (Life) insurance and financial markets. In the UK, this initially resulted in the bulk of CI policies focusing on accelerated mortgage products.
In Australia, the accelerated products also dominate but with a lower correlation to mortgages than in the UK. As CI’s main purpose is income protection, it helped fill the gaps left by an underdeveloped disability market, compared with other European markets.
The definitions of covered claim conditions developed in a similar way: initially according to specific country standards, and then later with influence from the simultaneous development of CI around the world.
As time went on, CI products became more complex and harder to compare, often leading to customer confusion. In addition, the lack of insureds’ knowledge as to what exactly constituted their covered conditions led to misunderstandings and unpaid claims. The consequences were bad press and further mistrust from advisors and customers. That became the start of industry wide standardized claim conditions.
In Canada, the standalone products quickly became more popular than the accelerated life versions. These products can offer a lifetime protection option. The return of premium on surrender and death, if no claim has been paid, is also an attractive marketing feature. The insured is covered in all situations.
Other markets stayed closer to the original aim of the South African product: to pay the costs resulting from a critical illness.
On top of this, both competition and consumer needs pressured companies to add additional conditions and options. Such conditions were usually of a “critical” nature as intended by the original concept, but had a low frequency that enabled the cost of such added conditions to be affordable.
with regulated CI conditions
No. of standardized conditions (2010)
Simple for customer to understand and apply for
Less cover than normal CI
Most comprehensive level of cover
Consumer misunderstanding of
Most decisions are made at point of sales. 86% of applicants leave bank with cover
Simplified underwriting increases price
Tiered benefits ensures close match to customer needs
High cost relative to rest of market
The 2 Extremes of Critical Illness – UK Market Example
HSBC Lifechoices (Trauma Choice)
Number of conditions = 5
Average new business process = 7 minutes
Bank distribution with tele-interviewing
Pru Protect Serious Illness Cover
Number of conditions = 161
Severity based payouts. 6 tiers of payout for each category of
medical condition (10%, 15%, 25%, 50%, 75% and 100%)
Fully-advised distribution with complex application process