ABI plans for two tier critical illness insurance rejected

Proposals from the Association of British Insurers (ABI) to introduce two levels of cover for cancer in critical illness insurance policies have been resoundingly rejected by insurers, financial advisers, regulators and medical experts.

 

Critical illness insurance makes a single cash payout on diagnosis of a serious, often life-threatening, illness such as stroke, heart attack or most forms of cancer. Such insurance tends to be expensive and the ABI has been consulting on redefining policies to keep payouts and premiums down.

 

One of its main proposals was to introduce two levels of cover for cancer. The first, more expensive, policy would continue to pay out on a wide range of cancers as soon as they were diagnosed. The second would offer much more restricted cover, only paying out when the cancer was more advanced and spreading into the surrounding tissue.

 

The proposal was heavily condemned by cancer charities when it was first published. The insurance industry, trade and consumer bodies have been equally critical in their responses to the consultation, which closed at the end of November.

 

Many independent financial advisers believes a two tier approach  would be dangerous for prospective policyholders.This is because people won't realise that the cheaper policies will only pay out in extreme cases. They will see the word "cancer" and think that they qualify for a payout automatically if they develop the disease.You could have a full mastectomy and a restrictive policy still would not pay out. To tell someone they are only seriously, not critically, ill when they are having invasive surgery is not acceptable, they believe.

 

A second ABI proposal to 'future-proof' the definition of illnesses has received a more positive response. Insurers are concerned that scientists may develop tests that enable the diagnosis of serious illnesses many years before symptoms become apparent. Not only would this deprive the company of the necessary premiums to support payouts, it also moves away from the original concept of the policy as protection for sufferers and their families against costs incurred as a result of critical or terminal illness. Future proofing may be  necessary to keep critical illness insurance affordable: eg In the future you might be able to diagnose someone with motor neurone disease 20 years before they actually developed symptoms.

 

Most advisors warn that those with existing critical illness policies should think very hard before switching them for new, cheaper versions. Even if the ABi proposals are not followed, rumours persist of companies planning to launch critical illness policies covering as few as three diseases.