35 Years of CI. Pacific Life Re Re:think. Introduction. August September 2018

Transcription

1 35 Years of CI Pacific Life Re Re:think August 2018 September 2018 Introduction This year marks 35 years since the first Critical Illness (CI) insurance policy was launched. It was the inspiration of a South African cardiac surgeon, Dr. Marius Barnard, a man with no previous experience in the insurance industry. Since its launch back in 1983 under the banner dread disease insurance, CI coverage has spread worldwide and is helping more consumers than ever before. Last year, the total value of claims paid for CI (in the UK) passed 1 billion for the first time ever. In addition to this, over 90% of CI claims were paid out, which is a much higher percentage than consumers perceive, therefore highlighting the need to improve consumers trust in insurance companies and confidence that if they have a CI policy, it will pay out. To mark this milestone, we want to reflect on the successes, trends and developments of CI over the past 35 years. 01

2 02 How Did CI Insurance Start? Dr. Marius Barnard, assisted his brother, Dr. Christiaan Barnard, to perform the world s first successful heart transplant in As a result of this, Marius saw that although patients often survived the procedures, they were often left in difficult financial situations due to the costs associated with treatment and lengthy recovery periods. This motivated him to find a way to support these patients through insurance, which laid the foundations for the first CI insurance policy. 1 1 After it was first launched in South Africa, the concept of a CI product was quickly brought to the UK, Canada, Europe, Australia and Asia. CI products became an instant success in Australia and the UK. How Has CI Insurance Changed? The first CI insurance policy (originally known as Dread Disease cover) was launched by Crusader Life, which covered four conditions: heart attack, coronary artery by-pass grafts, stroke and cancer. Policies have since developed to become more extensive, providing consumers with more cover. In recent years, insurers have sought to cover what sometimes seems an ever expanding list of conditions, which has resulted in rarer and less critical conditions being covered; CI policies now typically cover up to 55 different conditions. Despite this, the top 3 (heart attack, stroke and cancer) still account for nearly 80% of CI claims. There have been far fewer CI refreshes in recent years, which may suggest the conditions race has reached its peak, as the graph on the next page demonstrates. 35 Years of CI Pacific Life Re Re:think

3 12 Number of refreshes Source: Pacific Life Re analysis of market information Due to the advancements in medical treatments over the years, certain conditions that used to be perceived as a critical illness may now have less impact on a person s long-term health. However, due to increased competition in the market, instead of them being removed from the policy, they may now be covered as partial payments, which will typically pay out the lower of 25,000 or 25% of the sum assured. Due to the advancements in medical treatments over the years, certain conditions that used to be perceived as a critical illness may now have less impact on a person s long-term health. 03

4 04 The majority of CI policies also now have child CI included, which covers the policyholder s children for specified conditions. However, recently some providers have acknowledged that this isn t required by all consumers, so have created flexibility by offering child CI as an optional benefit. With all of these changes and flexibility comes complexity. To try and create some consistency in the market, the ABI Guide to Minimum Standards for Critical Illness Insurance (previously known as the Statement of Best Practice) was launched in These standards introduced ABI model definitions for over 20 conditions; as a minimum requirement, providers offering CI policies to consumers have to comply with these definitions. 35 Years of CI Pacific Life Re Re:think To further differentiate their offering, insurers have developed their own ABI+ definitions (i.e. definitions that exceed the ABI standards, therefore providing the consumer with more cover). An example of this is including all types of dementia in the cover, not just Alzheimer s disease. However, the challenge here is to ensure that an ABI+ definition does actually lead to paying more claims. However, the challenge here is to ensure that an ABI+ definition does actually lead to paying more claims.

5 By providing a CI policy that covers more conditions, including child CI and partial payments, it has meant that consumers are better protected, insurers are more likely to pay out on a claim and that policies are more flexible. However, as a result of this, policy conditions are longer and more complex and the products are harder to understand and more expensive. 35 Years of CI Pacific Life Re Re:think In an attempt to help consumers better understand their CI policy, more literature such as quick guide documents have been developed by insurers. However, with more conditions covered than ever before, even these documents tend to be at least 20 pages, which can hardly be seen as a quick guide by the consumer. By providing a CI policy that covers more conditions, including child CI and partial payments, it has meant that consumers are better protected, insurers are more likely to pay out on a claim and that policies are more flexible. 05

6 06 What is the Future of CI? Whilst CI has developed extensively since it was launched back in 1983, there is still room for further developments. Despite the industry making a lot of noise around making CI simple again, we have only seen a few insurers launch a more streamlined product. However, we have started to see providers diversifying their products and offering simple and comprehensive options. We have also seen the emergence of providers targeting consumers from different socio-economic groups. We see these trends continuing and we predict that CI policies will continue to cover less common conditions and less severe conditions may be added as partial or additional payments. We believe that these developments will provide consumers with more choice and transparency over the cost of their cover, as well as peace of mind that should they be diagnosed with a critical illness, they will be covered (providing it s included in the policy conditions). However, the key challenges are to develop products which provide a meaningful level of cover, support the consumer in their time of need, and maintain definitions that are clear for consumers to understand, whilst also keeping the products affordable, so that they are still financially viable to consumers. 35 Years of CI Pacific Life Re Re:think Despite the industry making a lot of noise around making CI simple again, we have only seen a few insurers launch a more streamlined product.

7 35 Years of CI Pacific Life Re Re:think Final Thoughts As we alluded to earlier, since its launch back in 1983, CI coverage has spread worldwide and is helping more consumers than ever before. Last year, the total value of claims paid for CI (in the UK) passed 1 billion for the first time ever; in addition to this, over 90% of CI claims were paid out last year. These are great statistics and should provide consumers with more confidence in insurers and peace of mind that should they need to make a claim, their CI policy will pay out. However, it may be considered that, as a result of trying to increase the level of cover for consumers, these product enhancements have created a hugely overcomplicated product that really should be very simple. The most important thing we need to focus on and the key challenge for insurers and reinsurers alike is to keep CI products relevant, affordable, easier to understand and beneficial to consumers now and in the future. 07

8 For more information about Pacific Life Re please visit our website follow us on LinkedIn or contact Europe James Tait Head of Protection Pacific Life Re Europe T: +44 (0) E: Pacific Life Re Limited (No ) is registered in England and Wales and has its registered office at Tower Bridge House, St Katharine s Way, London, E1W 1BA. Pacific Life Re Limited is authorised and regulated by the Financial Conduct Authority and Prudential Regulatory Authority in the United Kingdom (Reference Number ). The material contained in this booklet is for information purposes only. Pacific Life Re gives no assurance as to the completeness or accuracy of such material and accepts no responsibility for loss occasioned to any person acting or refraining from acting on the basis of such material Pacific Life Re Limited. All rights reserved. PLRECI0818