Group critical illness claims stats differ from those for individual CI for good reason says Ellipse CEO and Group Risk Development (Grid) chairman Lee Lovett
As many are aware, Grid has been a forerunner in publishing annual claims statistics for the group risk market, which we have done for the last 7 years, the most recent stats being released in April 2016 for the 2015 calendar year. These are published together with a more detailed analysis for our members on the cause of claims and an explanation of claims that are declined.
There has been some commentary on how the group critical Illness (GCI) claims paid compare with the claims paid by the individual CI market – we believe it would be helpful to address this.
Let’s start with the headline figures. It has been reported that 93 per cent of individual CI claims were paid last year, compared to 81 per cent of group claims. However, as is often the case, these headline stats don’t tell the full story.
Looking at the bigger picture, this is as much about distribution as it is claims. Direct comparisons with the individual CI market are not necessarily valid for two main reasons; underwriting and distribution.
The underwriting approach is different in the group market: individual business is fully underwritten and hence insurers will typically not offer cover to lives with a poor medical history. GCI has no medical underwriting and instead utilises a pre-existing condition exclusion (PECE), as happens in certain other parts of the insurance market. This means everyone can be covered, albeit with the PECE applying.
While a PECE approach has its drawbacks, the rationale is mainly driven by distribution.
Approximately two-thirds of GCI business is written on a flexible benefits basis, where employees can decide if they wish to be covered for critical illness via an employer-facilitated arrangement. In this scenario there are two options – either medically underwrite all those selecting this cover, or apply a PECE. Both options exist in the market and, indeed, my own company Ellipse can offer a fully underwritten solution. However, our own experience, as evidenced by very low new business volumes for the underwritten option, shows us that a combination of advisers, employers and employees simply don’t want the hassle of the underwriting approach, even if it is very straightforward, as is the case with our own process. Consequently, the market has developed based on a PECE proposition, even though many would argue that the fully underwritten approach would give a better outcome.
In practice, we have a situation where the group market paid out over £62m in claims in 2015 to almost 1,000 people, and made a real difference to those lives. With current buying preferences, namely the lack of support for the underwriting option, the alternative would be that far fewer people would be covered. This would increase the percentage of claims paid, but would significantly reduce the extent of the support that we give to people.
Do we want a higher percentage of claims paid to fewer people, or more people covered? I know which option I prefer.
The Grid stats also tell us that the PECE v underwriting approach is only part of the explanation of the percentage of claims paid. Around 10 per cent of GCI claims are declined, with the primary reason being that claims are submitted for conditions that are not covered. A similar challenge exists with the individual version of the product. Tackling this issue remains a challenge for all critical illness insurers, and one that the industry is continually working to improve.
Within our current framework, ultimately, I believe we should aim to make GCI available to as many people as possible and continue to work on improving awareness and understanding of what is and isn’t covered.
Our ultimate aim at Grid is to raise awareness of the importance of group risk protection and the role of the employer in facilitating access to financial protection benefits. We all work hard in the industry to pay claims. We have all been touched by the difference that our payments make to people’s lives, and how we support UK plc.
While the subject of claims statistics is important – indeed we proactively support the publishing of claims, and we work hard to pay more – we believe it is more helpful to raise the profile of other issues. The work done by the 7Families initiative has been excellent at highlighting the importance of income protection cover for example – with case studies showing the difference that such cover can make to people’s lives and the protection industry working together to showcase the additional non-monetary support that we give to people. Could we next take on the challenge of showing the difference CI, and the support provided to claimants, has made to real lives?
We are working as an industry to improve definitions, improve communications and develop strong tripartite relationships between advisers, employers and providers. We want the whole protection market to make a difference to more lives, not fewer, and we believe there are more helpful discussions we can have that will be of greater benefit.