Analysis: Critical illness – the pros and cons of partial payments

An increasing number of critical illness providers are offering partial payouts, as Tessa Norman reports

An increasing number of critical illness providers are offering “partial” payments to customers with less serious conditions. But does the potential of more pay outs necessarily mean better cover? Tessa Norman reports

With the so-called illness race slowing down and ABI+ (“Association of British Insurers plus”) definitions becoming little more than a numbers game, critical illness (CI) providers are looking for new ways to differentiate themselves from the competition. Increasingly, insurers have been looking to partial payments – where claimants receive a proportion of the sum assured if their condition meets a less severe definition than the full one – to add value.

Early stage cancers have proved a logical starting point for the industry in this new battleground, but with providers beginning to add further conditions to their partial payments list, some are starting to question whether this is the beginning of yet another pointless numbers game.

The partial payments revolution was kicked off in September 2007, when PruProtect launched its serious illness cover, an entirely severity-based product. Since then, other providers such as Aviva, Friends Life, Bright Grey and Scottish Provident have gradually been introducing partial payments for certain conditions, with the latest change coming from LV= just last month.

But are partial payments on these conditions truly adding value for the consumer in the same way they do for cancer, or are they merely making CI overly complicated?

SELLING POINT

“From an intermediary perspective, the addition of partial payments is a really positive move as they are a great selling point,” says Sarah Fullaway, director of OVISO, a specialist protection adviser. “When providers began adding partial payments for mastectomy, that was the unique selling point which we used to sell one policy over another.”

However, Fullaway says she would only want to see partial payments offered on conditions where they would make a genuine difference to the consumer, a point which providers are keen to emphasise.

“Our starting point on partial payments was to recognise that there are certain conditions which do not meet the full CI definition but still have a tangible impact on people’s lives,” explains Mark Jones, head of protection at LV=, which recently added another five conditions such as severe Crohn’s disease and partial loss of sight to its existing partial payments list of prostate cancer and ductal carcinoma in situ (DCIS), the most common form of non-invasive breast cancer.

“We sometimes get into silly discussions within the industry about the technical ‘level’ of illnesses, but for the majority of people, their reaction on being diagnosed with cancer will be the same, regardless of its severity.”

Bonnie Burns, product development director for Legal & General’s protection business, says the insurer first started looking at the concept of partial payments after conducting some research with Macmillan Cancer Support.

“Macmillan has done a lot of work on the hidden costs that people suffering from cancer face, such as wigs and hospital parking charges,” she says. “We wanted to find a way of covering some of those additional costs, and were keen to make sure that we were catering for a real need.”

Burns says Legal & General will look to offer more partial payments in the future, but only on conditions which stand up to the same principle of customer need.

NUMBERS GAME

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