‘Serious Illness Cover served to ignite the market’ - Alan Lakey on 40 years of Critical Illness
Following the recent enhancements and simplification of our Serious Illness Cover, Rob Harvey, VitalityAdviser Editor, caught up with CIExpert founder Alan Lakey to discuss how the market has evolved during its 40-year lifetime.
2023 is a significant year for the protection industry. It marks the 40th anniversary of the launch of the first critical illness policy, by Dr Marius Barnard, brother of the pioneering cardiac surgeon Dr Christiaan Barnard.
The world has changed enormously in those 40 years, with everything from advances in medical science improving survival rates for many once-fatal illnesses, to a steady increase in life expectancy thanks to access to better healthcare and rising living standards.
The protection industry has also changed considerably during this time. Early iterations of critical illness plans were fairly basic, with policies tending to only cover a limited number of conditions and none of the many features and benefits that we see today.
“Having claimed on a critical illness plan, the risk of claiming a second time is increased”
The birth of CIExpert
One of the most significant developments of the past 40 years in the critical illness space was the appearance of CIExpert.
Founded by adviser and protection specialist Alan Lakey over 12 years ago, the specialist tool allows advisers to compare the quality of both current and historic critical illness plans. Where traditionally advisers would have relied on price or number of conditions to determine a recommendation, CIExpert provides detailed expert analysis based on policy condition wordings.
Following the recent 2023 Life Launch Vitality products have now been added to CIExpert meaning that advisers can compare these plans alongside other products on the market and review the quality of cover available across SIC 1X, 2X and 3X.
According to Lakey himself, the introduction of Serious Illness Cover, which was arguably the biggest innovation since critical illness cover was first devised, was a “wake up call to the market” and “served to ignite the market into its current position, where more conditions are covered and wordings that are superior to what they were 10-15 years ago”.
Despite these overall improvements, and the broader developments in medical science, however, the core design of critical illness insurance remains largely unchanged. With the exception in some cases of additional cover for less severe conditions, most policies still pay out in full and finish if the claimant meets the specific condition wording.
The emergence of severity-based cover
Vitality’s unique severity-based approach to Serious Illness Cover has always been about bucking this trend, by better responding to the wider trends in the diagnosis, treatment, and likelihood of survival from different illnesses.
Reflecting on how things have moved on since the first introduction of critical illness cover, Lakey highlights that “something that was particularly serious and life threatening many years ago is not necessarily the same today”.
To remain relevant, it’s clear products need to adapt and innovate. A severity-based approach to cover offers several clear benefits. On one hand, clients can be covered at the earlier stages of a condition, with the pay-out reflective of the severity and impact of that illness.
This approach also provides cover for longer, with clients able to claim multiple times if their condition worsens or reoccurs, or if they’re diagnosed with another condition all together.
The growing need for multiple claims
As medical advances have increased the survival rates for once fatal conditions, there’s an increased chance of people going onto develop secondary illnesses. For example, one in five cancers are now recurrences.1
With these trends in mind, Lakey concurs that “longevity of cover will be very important to many consumers. Having claimed on a critical illness plan, the risk of claiming a second time is increased. Those people who have had cancer are more likely to get cancer [again] than a typical person and the same with heart attack and stroke, it’s more likely to reoccur.”
Obtaining new cover after a policy has paid out and finished can also be challenging, particularly if the claim was for a more serious conditions such as cancer or heart attack. If a policy can simply continue and give clients the ability to claim a second or third time, this will be of “great importance” to those that may be worrying “how life will carry on after getting one of these illnesses,” Lakey explains.
With Vitality’s new Serious Illness Cover 2X and 3X plans, clients have the peace of mind that even if they’re paid out in full for a condition, they’ll still be covered and can claim the full sum-assured again if something else arises. This is completely unique in the market and Lakey anticipates 3X “being at or towards the top of the table” on CIExpert’s quality comparisons and 2X “not far below”.
In Lakey’s view “If a client is looking to provide not only a wide range of cover, but at the same time ensure their policy continues after a claim, then the new Vitality plans, especially 2x an 3x will enable them to do that.”
Tackling later life care
As we’ve highlighted, more of us are also living longer, but often in worse health. The number of people for example living with dementia in the UK is set to rise to 1.6 million by 2040.2
For Lakey, this highlights an important challenge and opportunity for the market. “Just covering oneself up to age 65 or 70, or just covering the mortgage is these days no longer sufficient, because there’s a greater need sitting behind that,” Lakey points out.
For advisers “looking at their client’s potential future situation” is a key area to focus on and unique solutions like Dementia and FrailCare Cover are “gaining greater importance each week”.
What’s next for the critical illness market?
In light of these trends, Lakey sees the biggest challenge to be simplification, because in his view “critical illness plans have become very complex over the years” and ultimately advisers and their clients just want to know they’re covered.
It’s also crucial for products to deliver good outcomes for clients, particularly with the new upcoming Consumer Duty regulations.
One of Lakey’s concerns is that “some clients are falling through the cracks”, because they’re diagnosed with a condition that causes a financial impact, but they can’t claim because it’s “not a named condition”.
It’s for these reasons that Vitality’s three new Serious Illness Cover products have been designed to cover the most conditions available on the market, including many unique conditions not listed by other insurers. Using broad definition wordings that focus on severity and bodily impact, ensures clients are properly protected from the financial consequences of falling ill across a range of severities.
So, should quality of cover always win over price? Lakey’s view is that balance is needed. After all, “what we’re trying to do is ensure people are covered as much as possible, within their budget”. But his overall hope is that advisers in the market opt for “quality over premium,” he concludes.Where to next?
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1 Cancer Research UK, Nov 2021
2 What are the costs of dementia care in the UK? | Alzheimer's Society (alzheimers.org.uk)