Critical Illness Cover needs more than just a name change
Given the rapidly changing needs of clients, critical illness cover needs more than just a rebrand, writes Greg Levine, Chief Operations and Growth Officer at Vitality.
2023 marks the 40th anniversary of the launch of the first critical illness policy. However, the basic design of critical illness cover remains fundamentally unchanged, even though the world has changed beyond recognition during that time.
And whilst it’s positive to see the industry recently debating the future of critical illness insurance, it’s clear that to meet the evolving needs of consumers, traditional critical illness has needed a rethink.
A changing health and medical landscape
In recent decades, we’ve seen rapid advances in medical science, whilst wider trends have impacted the overall health and wellbeing landscape.
Conditions that would have once been fatal are now more treatable, thanks to improvements in more advanced diagnostics and treatment options.
We’re also living longer, but in poorer health1. With increased survival rates for serious illness, comes an increase in people developing secondary conditions. One in five cancers are now a reoccurrence2, whilst one in five will be back in hospital within a year after having suffered their first. This can have major financial implications for those experiencing recurring ill-health.
Consumer needs have also shifted, driven by wider trends shaping the way people live and work, impacting many of the traditional insurance triggers.
The expectations and needs of today’s consumer are very different to those of 40 years ago. All of which means insurance needs to adapt, innovate, and move forward with the times.
A historic lack of innovation
Despite all this, traditional critical illness cover has largely stayed the same.
Over the years the number of conditions covered has expanded. However, the vast majority of claims are still based on an ‘all or nothing’ criteria and clients face the risk when taking out a product, that they suffer an illness that’s not quite critical enough to warrant a pay out.
And although we’ve seen the emergence of additional cover conditions – as an attempt to address the need for broader cover for less severe illnesses – this approach is largely a flawed compromise.
The devil is in the detail and the ability to successfully claim can often be hampered by the need for specific surgery or treatment, or for symptoms to be permanent. Pay-outs are also arbitrary, capped at an amount determined by the insurer and with no ability to increase the additional cover amount in line with indexation.
Traditional critical illness plans are also unlike other insurance products; in that following a full pay-out, cover terminates. It can often then be extremely difficult for someone to obtain further cover if needed.
Like all traditional protection insurance products, risk is also still largely assessed at outset and treated as static, rather than rewarding and incentivising behaviours proven to reduce the likelihood of claims occurring.
A persistent protection gap
This lack of wider product innovation would merely be disappointing, were it not for substantial protection gap that persists in the UK.
With the recent introduction of Consumer Duty, there is a greater need than ever to deliver good consumer outcomes, heightened by current economic uncertainty. The focus needs to be more than renaming products just to create awareness. The product itself has required a fundamental overhaul.
It’s no longer enough for cover to be limited to the most advanced stages of an illness - or to simply pay-out and then finish. Given medical trends, the need for clients to claim multiple times is only going to increase.
More must also be done as well to address the growing later life challenges, to provide a solution to the social care funding problem in the UK.
Bucking the trend
Ultimately, we named Serious Illness Cover because it is genuinely different to traditional critical illness cover.
Its unique approach to severity-based cover, for example, ensures clients are covered at the earlier stages of their condition, with the pay-out reflective of the severity and impact of their illness.
This also affords a much wider breadth of cover, for what are increasingly common conditions.
One in eight Vitality claims in 2022 were for unique conditions not covered by a typical critical illness policy, including pulmonary embolism, cardiac arrythmia and rheumatoid arthritis3. These are not niche conditions. 50,000 people in the UK are hospitalised each year after a pulmonary embolism4, 1 in 45 suffer cardiac arrythmia5 and 450,000 are affected by rheumatoid arthritis6.
Crucially, this approach also means a client’s cover does not simply end after a claim is made. In 2022, one in 12 Vitality claimants were claiming for a second or third time7. Following the enhancements made earlier this year, clients can uniquely claim in full multiple times through Serious Illness Cover X2 and SIC X3.
According to Protection Guru’s Adam Higgs, Serious Illness Cover offers a “more sustainable approach to critical illness”, because longer-term, insurers will not be able to continue paying out in full for conditions that are being diagnosed much earlier and with significantly improving survival rates. Either we’ll see conditions being removed from policies, definitions made more restrictive or the more widespread adoption of a severity-based approach to paying claims.
And, with the automatic inclusion now of our unique Dementia and FrailCare Cover, financial protection can extend beyond the term of the plan to help tackle the growing later life care challenges.
To take it one step further, through our next generation approach to insurance we can improve the health of clients and prevent illness from arising in the first place, as well as deliver tangible value from day one, through the Vitality Programme. After all, avoiding claims from occurring in the first place is better for everyone
Where to next?
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1 Health Foundation 2023
2 American Cancer Society
3 Vitality Life Claims and Benefits Report 2023
4 Pulmonary embolism. BMJ Best Practice, 2018
5 BHF, May 2023
6 National Rheumatoid Arthritis Society, accessed 2023
7 Vitality Life Claims and Benefits Report 2023