Royal London Critical Illness
Royal London has introduced a number of changes to its critical illness plans and now also makes total and permanent disability (TPD) cover optional rather than automatically included. If customers choose not to add it, their premium will be lower.
Three new full payment definitions have been added (full definitions shown):
1. Benign spinal cord tumour - resulting in permanent symptoms or specified treatment.
- A non-malignant tumour or cyst in the spinal cord, spinal nerves or meninges, resulting in any of the following:
- permanent neurological deficit with persisting clinical symptoms; or
- surgical removal of all or part of the tumour; or
- undergoing either stereotactic radiosurgery or chemotherapy treatment to destroy tumour cells.
For the above definition, the following are not covered: - · angiomas.
2. Brain injury due to anoxia or hypoxia - resulting in permanent symptoms.
- Death of brain tissue due to reduced oxygen supply (anoxia or hypoxia) resulting in permanent neurological deficit with persisting clinical symptoms.
For the above definition, the following are not covered:
- sickness or injury as a result of drug or alcohol intake or other intentional self-inflicted injury.
3. Ulcerative colitis - treated with total colectomy.
A definite diagnosis of ulcerative colitis confirmed by a consultant gastroenterologist which has been treated by removal of the entire colon (large bowel).
In addition there is one amendment to a current additional payment definition:
Coronary angioplasty – with specified treatment
The undergoing of any of the following:
• balloon angioplasty;
• atherectomy;
• rotablation;
• laser treatment; or
• insertion of stents.
The above surgeries must have been carried out on the advice of a consultant cardiologist to treat coronary artery disease in two or more main coronary arteries or a single coronary lesion of the left main stem. Two coronary angioplasty procedures performed in different arteries at different times is covered.
For the purposes of this definition the main coronary arteries are:
• right coronary artery or its branches;
• left main stem artery or its branches;
• left anterior descending artery or its branches; and
• circumflex artery or its branches.
Comment: This is a good CI product and the three new conditions and amended existing definition make the plan even more attractive.
Allowing customers to choose not to have TPD cover might be seen as positive too, as that not only gives more choice, but also lowers the premium. There is though a downside and, after much debate amongst the Protection Review team we set out below some of the principle arguments for and against (apologies for the length!).
First, the argument for making TPD optional. Royal London says: ‘making TPD optional provides customers with more flexibility and ensures cover can be better tailored to their needs’. Certainly, if a customer cannot get TPD for underwriting reasons, or already has sufficient TPD cover elsewhere (for example they hold an accident insurance policy for a similar or greater sum insured – although that only covers TPD resulting from an accident rather than from any cause) the option not to have TPD will be welcomed.
Including TPD adds a little to the cost and may involve more and stricter underwriting, which may involve delays and ratings or exclusions. So, giving the customer the option not to have TPD makes sense.
Moreover, only around 1 in 30 CI claims is for TPD (source: ABI claims stats for 2016) and a very high 30.5% of TPD claims were rejected in 2016. The latter reflects badly on an industry that many still do not trust, despite strenuous efforts by the industry to prove insurers do pay all valid claims. Many of the claims rejected would have been because the customer was unable to meet the very high hurdle set by the TPD definition. In practice some brokers have asked that TPD should be optional and allowing this enables them to operate more effectively. For customers too, long underwriting delays and ratings may result in some simply choosing not to have CI cover at all. Optional TPD is therefore in the customer’s best interests as the choice is made by them not imposed on them. It is also arguably better for someone to have CI with no TPD rather than no CI cover at all.
Now the argument against making TPD optional. Critical illness insurance was designed so that if a really serious illness or disability hit someone, the CI insurer would pay out a large lump sum to them that they could spend in any way they chose. The very early plans were far from perfect and it quickly became apparent that there were some very serious conditions that would result in no payout.
TPD (or PTD as it was often called then) was a partial solution (the claims race – where insurers look to add more and more specific conditions and widen the definitions on others, is another). TPD set the claim bar very high but did mean that if you were disabled, not just totally but also permanently, the plan will pay out – almost regardless of what the underlying medical condition is. TPD helped make up for the basic design flaw that CI only pays out otherwise if a specified condition arises, but if you have another critical illness you get nothing. It was a catch all or added safety net.
TPD is not a perfect solution however and requires both ‘total’ and ‘permanent’ disability – and we all know people who would qualify under one or the other but not under both. According to the ABI, in 2016, 30.5% of all TPD claims were rejected, compared to just 7.8% of all CI claims.
But, the industry did pay out over £30m in TPD claims in 2016 on some 531 policies. That compared to just over £1bn paid out on 15,464 CI policies. In other words, for every 30 CI claims paid, roughly one TPD claim was paid. Leaving out TPD means losing about 1/30th of what a good CI plan would cover. An analogy might be buying home insurance that does not pay out if the insured event takes place on say the last day of the month.
As customers do not know whether they will ever suffer a CI or if so, what the cause will be, why would anyone voluntarily choose to be not covered for the equivalent of one day a month?
And that’s the problem with making TPD voluntary – it can sound sensible but if you work through the implications, choosing not to have it means choosing not to be fully covered.
Moreover, every one of those 531 TPD claimants in 2016 would have been in a very serious state. Some, perhaps many, will not have survived. Of those who have, their financial and other needs are likely to be substantial. They need a CI payout more than most. Their families, their businesses, need that too.
If their IFA had advised them not to have TPD because it’s more trouble than it’s worth, is that misselling? At the least is the customer really making an informed decision to limit their cover?
So perhaps the message from IFAs (on whose advice customers are likely to rely) to their customers should be: ‘by all means choose not to have it – but please think really, really carefully before you make that decision – it’s really important and you can’t add it back in if you change your mind later’.
Choosing not to have TPD might lull people into a false sense of security – security that buying CI should afford them. Any IFA who advocates not having TPD is themselves taking a very big risk with their reputation, because it is hard to see that as good advice.
If TPD needs improving – fine, improve it. But, making it optional doesn’t make the issues around TPD go away but instead just makes CI less comprehensive than it should be. TPD has faults but, for over 500 people last year, it proved itself and delivered what CI should – it paid out when they had a very serious, life changing condition.
So, those are the arguments for and against – if you are an IFA or broker, you will doubtless have your own views as to whether TPD should be included or excluded or whether you or your client should decide that. If you recommend not to include it, do make sure not just that your client fully understands the implications, but also that the decision process is fully documented. We live in litigious times…
Our rating is for a plan with TPD. Allowing customers to choose not to have TPD without explaining the full implications of what that might mean and ensuring the customer understands and really wants that would result in that rating being lower.
Plus points: Additional benefits (three new conditions covered) and one amended benefit; Choosing not to have TPD lowers the premium.
Not so plus points: Making TPD optional is superficially adding choice but in practice could prove to be a very bad move if the customer becomes disabled; CI remains a complex product in need of innovation – but that must be genuinely customer focused.
Website: http://www.royalondon.com.
Rating (max 10): Innovation: 7. Overall: 8. Gold
Tags: CI; Royal London