AIG Life Key3
On 10 August, AIG Life launched Key3, a simpler form of critical illness insurance (CI) designed to provide more affordable cover and to appeal to younger people.
The plan is available with or without life insurance (which also pays out on terminal illness diagnosis) and pays out on diagnosis of cancer, heart attack or stroke only. If bought standalone, there is a 14 day survival period. In addition to the lump sum benefit, the plan also provides access to the Best Doctors service for up to three years after a claim has been paid. Also included is access to AIG’s unique Claims Support Fund, which can pay out up to £300 while a claim is being processed, in order to cover additional expenses such as travel and parking costs, counselling and physiotherapy.
Key3 is available from age 17 to 75 at outset and is available on a level, decreasing (to tie in with a capital and interest mortgage at a particular interest rate) or increasing (benefits rise by 5% a year but premiums will rise by more) basis. Waiver of premium is also available on one or both lives on a 26 week deferred basis. The plan is available on single lives or on a joint life (first event) basis or on the life of another.
AIG Life says the new plan is targeted at those who haven’t traditionally considered such insurance, including younger single people who rent, those on a tighter budget and people who may choose not to seek full face-to-face financial advice. Research with intermediaries found they said customers most feared the three conditions covered and that they might be interested in insurance covering these three medical conditions if it cost less than comprehensive CI cover.
Comment: AIG Life says almost 80% of its adult CI claims last year were from cancer, heart attack and stroke and that there is a huge market of people who don’t have CI cover and don’t realise they need a financial plan in place if they fall seriously ill. So, its’ new plan covers just these three and, we can also assume that means not just a simpler plan to understand that is also cheaper to buy but also one where more people can be accepted at standard rates.
All of which must be good news – especially if more younger people and those in ‘generation rent’ can be attracted to such cover.
However, the downside is that not all critical illnesses are covered and, using AIG Life’s own stats, more than 25% more claims could be paid out if people had comprehensive CI cover instead. To some extent this new plan goes back to the very early days of CI cover when just a handful of conditions were covered. Back in the 80s, more conditions were quickly added partly because anomalies started to arise – client A had a ‘minor’ heart attack and got paid out whereas client B had disabling multiple sclerosis and received nothing. Client C had cancer, was paid out and went back to work, whereas client D had a benign brain cancer, received nothing, and could never work again.
Such anomalies were unfair IFAs argued - and they were right. And so began the inexorable rise in the number of conditions covered. All the customer really wants though is to know that if they have a very serious condition (including the ‘big 3’) their CI policy will pay out. But, with all current CI designs, that adds complexity, harsher underwriting and more ratings or exclusions.
There is one potential way round this and that would be to offer something like Key3 initially, but to then offer an option to convert to full comprehensive cover later. That might mean the customer paying to be underwritten and such an option could not be offered to everyone, but it would avoid the situation where 1 in 5 potential claimants can’t claim and so potentially look to blame whoever sold them the ‘not fit for purpose’ cover.
Some IFAs may say plans such as Key3 are attractive to them but, when they weigh up the risks to their clients and their own reputational (and compliance) risks, such simplified cover may be just a step too far. That said, Key3 may have another role – and that is for the adviser to quote both for this plan and for more comprehensive cover – illustrating how (relatively) little more it costs to have the wider cover. That won’t help Key3 sales, but if it increases CI sales overall that may well be a better deal for all concerned anyway – including AIG Life.
In conclusion, we applaud AIG Life’s initiative, and anything that improves perceived simplicity and understanding is positive, but we fear the loss of valuable CI cover will be too much for many intermediaries.
Plus points: Simple CI cover that pays out on being diagnosed with one of the ‘big 3’ critical illnesses – cancer, stroke and heart attack; Much simpler to understand than comprehensive CI; Cheaper than comprehensive CI; Potentially lighter underwriting (and fewer ratings) than comprehensive CI; Can include life cover and WOP; Incudes access to the Best Doctors service; If a valid claim is not paid within eight weeks AIG Life pays interest on it (but currently, only at 0.5% pa and it’s not clear what would happen if Bank of England Official Bank Rate were to be negative)).
Not so plus points: More than 25% more claims could be made if customers choose comprehensive CI cover instead; Although simpler, the cover details still run to 20 pages; WOP has a 26 week deferred period (as do most CI plans – but three months would be better); Waiver of premium benefit is effectively not payable if the claimant lives outside the UK, Channel Islands, Isle of Man or Gibraltar; The Claims Support Fund is discretionary and requires AIG to approve the service to be paid for; The documentation refers to life ‘insurance’ but to the sum ‘assured’, which is confusing to customers.
Website: www.aiglife.co.uk.
Rating (max 10): Innovation: 7. Overall: 6. Bronze