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

“There is a lot of confusion around CI, so before we make things more complicated we need to address consumer understanding on a much lower level,” Smart says.

But from an intermediary perspective, added complications may be no bad thing.

“The addition of partial payments highlights the need for advice,” explains Michael Aldridge, sales director at London & Country Mortgages, the advisers. “A good intermediary can cope with the complexities of various products, but a consumer using a comparison website would really struggle to understand the differences in contracts.”

He says that on the whole partial payments are to be welcomed, but warns there is a danger that providers may start adding partial payments where they could have improved the full definition instead.

“I would say it is a good thing as long as consumers don’t receive a partial payment where they could have received a full one,” he says.

Aldridge also points out that for some conditions, the likelihood of receiving a claim is so low that it becomes a pointless addition.

“You can’t get away from the fact that the vast majority of CI claims are for cancer, heart attack, MS and stroke, so as an industry we should perhaps be concentrating our efforts on improving what we offer for those conditions,” he says. “Adding mastectomy as a partial payment was a really good move and truly added value – but you run out of those examples.”

RGA UK’s James agrees, explaining that certain partial payments or new conditions can be added to a policy at no extra cost because the likelihood of someone claiming is so low.

“If the reinsurer makes no extra charge [to the insurer], you have to question what the value is to the consumer,” he says. “Providers are in a difficult position because if they add something to the policy that increases claims by 5%, their price will increase by 5% and they will drop off the price comparison for intermediaries.”

ROOM FOR IMPROVEMENT

And there is certainly still plenty of room for improvement, with many providers only paying out partial payments at the point of treatment rather than diagnosis. This means that for a condition such as low grade prostate cancer, where the recommended treatment in the first instance is a period of active surveillance, many will have a long wait for a pay out or may never receive one.

While Smart argues that people do not need a payout until they have undergone treatment which affects their ability to earn a living, Aldridge says it would be welcome to see more providers paying out at diagnosis.

“It gives the client more options at a difficult time,” he says.

In addition, partial payments have not yet started to filter through into claims statistics, so it is difficult to quantify their impact so far. PruProtect has not yet started publishing claims statistics for its serious illness cover, while Bright Grey and Scottish Provident, which introduced partial payments in May 2011, paid no partial payments last year. LV=, which first introduced partial payments in February 2011, also only paid full claims last year.

However, LV=’s Jones argues that even if the claims take a few years to come through, partial payments have immediate value in that they give consumers greater peace of mind.

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