When someone is faced with a life-threatening illness, an insurance payout could make all the difference. So why isn’t this type of policy more popular than it is? Nic Paton investigates
Group critical illness insurance really shouldn’t be a hard sell. You pay into a scheme and, in return, if you’re misfortunate enough to have a heart attack or stroke or suffer from cancer, or need a specific surgical procedure, perhaps an organ transplant, or open-heart surgery, you get paid a tax-free lump sum, whether or not you’re able to return to work. What’s not to like?
Indeed, as Paul Avis, marketing director at Canada Life Group Insurance, highlights, critical illness should be an even more compelling proposition than traditionally popular ‘death’ benefits such as group life assurance.
“Critical illness is a benefit for the individuals themselves. With death benefits it’s reassuring to know you have them, but they’re there to benefit your dependents. Everyone knows someone who has had a heart attack, cancer, stroke and so on, and these make up around 90% of all critical illness claims.
“One of the reasons why critical illness is growing so much – and we’ve seen a double-digit growth rate in this area since 2007 – is that when you put it in front of an employee and explain it properly, it is an amazingly positive message,” he adds.
But there’s the rub: “explain it properly”. You can probably sum up the problem in two words: pre-existing conditions.
Because critical illness cover is medically underwritten at the point of claim, rather than up front, it is important employees understand that pre-existing conditions are excluded. This means the employee must grasp the policy terms and conditions and is completely candid about what pre-existing conditions he or she has, prior to joining the scheme and claiming.
This, in turn, means there can be a danger that when a claim is made (perhaps after years of paying in) it can be rejected. Just as potentially damaging, where there is non-payment of claims the workplace grapevine – whether accurately or not – goes into overdrive.
This is despite the fact that, more often than not, the perception “they’ll never pay out anyway” doesn’t reflect the reality, emphasises Simon Crewe, senior consultant at employee benefits consultancy Xerox HR Services (formerly Buck Consultants).
“I’ve only heard of one or two critical illness claims being rejected in the 12 years I’ve been working in employee benefits. In most cases it was not the insurer trying to wriggle out of something, but a genuine misunderstanding or miscommunication between the insurer and the employee when they came into the scheme.”
He adds: “The communications are critical. You only need for one claim to be rejected and then word of mouth is that ‘this policy isn’t worth the paper it’s written on’. Yet it’s one of the few benefits an employee can directly benefit from.”
The limits to claiming
One solution is to locate any critical illness benefit within your flex platform, as employees have more control over whether it (and the cost) is a viable option for them, advises Pauline Iles, senior risk benefits consultant at Quantum Advisory.
“If you bring it in across the board people can find they’re paying for something they can’t claim on,” she explains.
“If you add it on for everyone then somebody probably won’t be able to claim, and the negative feeling that can arise from that can be quite damaging.”
Assuming you do position it this way, there is then an opportunity at the benefits election window to be proactive around explaining what group critical illness is and isn’t, and the caveats around it as a product, agrees Canada Life’s Avis.
“With around 60% of the group critical illness market bought through flex/online benefits platforms, one challenge is that, unlike in individual critical illness, the employee will not necessarily have an adviser sitting in front of them explaining the technical detail. So it is important to ensure the employee understands about pre-existing conditions,” he says.
Understanding how it works
“We provide all these materials, most insurers do. And one of the most important tools is an interactive claims guide that can show the employee what happens when they submit a claim form; how it is assessed and how it gets paid,” he says.
Avis adds that another important ‘sell’ to get across, and which is often overlooked, is the range of secondary benefits that normally accompany critical illness, such as access to a second medical opinion, emotional or rehabilitation support and the option to cover family members.
“It is vital the employee reads the terms and conditions, and the employer can help with this,” agrees Quantum Advisory’s Iles. “It is important to help employees understand what they are signing up for. If they’re presented with a page full of tiny, legal text they’re probably going to switch off after a few paragraphs. So an FAQs document could help in terms of being able to communicate the key questions and answers employees may need to address.”
“I think we need to be pushing back on advisers about the need to be doing more around communicating terms and conditions in plain English,” argues Xerox’s Crewe. “T&Cs from some providers are often several pages long, and the reality that people will read them fully is probably limited.”
More use could be made of testimonials, he also suggests. “Critical illness has traditionally been a benefit where it has been left up to people to carry out their own investigations. But we need to help people along that journey.”
Certainly, progress does appear to be being made. Last year’s Swiss Re survey of the group risk market calculated that group critical illness was one of the fastest growing group risk benefits during 2014 – and so arguably employers must be doing something right – with a 7% increase in the number of schemes, and 60% now offered through flex or voluntary platforms.
Moreover, when it comes to communication, employer research in September from Group Risk Development (GRiD) suggested 30% already “clearly” set out group critical illness terms and conditions on their intranet or in their staff handbook, 31% detailed it in their employee benefit statements and 17% issued regular communications.
However, intriguingly, 13% conceded they deliberately made a point of not communicating the benefit “to ensure it is not abused”, while 14% “had not got around to it”.
Changes from within
Nevertheless, John Ritchie, chief executive of online group risk insurer Ellipse, argues that, in the long run, what’s needed is a complete rethink of group critical illness, especially a fundamental rethink of how it’s underwritten. The industry needs to be actively looking at solutions that simply design out the whole notion of “pre-existing conditions” from the process.
Traditionally, underwriting around group critical illness has been unwieldy, time-consuming, expensive and tedious, he contends. Ritchie says: “But if you can do an individual check online in 10 minutes, if you have the capability to do that, this may be the way to go.
“Critical illness is a great product. It is a very affordable, elective cover that is massively underestimated and underused. So it is important to promote the purpose of the cover. But we do have to do a lot more to improve the communications, and we should design out pre-existing conditions exclusions – and that is entirely possible,” Ritchie adds.