28th March 2023

The merits of “Grouping” in the Critical Illness market

The recent relaunch by Vitality signals a major change in the critical illness market.   

Vitality first entered the UK market as PruProtect back in 2007.  Their approach was completely different to that of the UK insurers which had been poking around with the same template for twenty years.  They arrived with a plan based on that offered in South Africa by Discovery, one which included a far higher number of conditions, albeit most of them not paying 100% of the sum insured.

They also introduced the concept of rewarding policyholders for becoming or remaining healthy and penalising those who failed to do so.  Those achieving platinum status saw their premiums fall by 2.25% each year whilst those on Bronze status found premiums increasing by 2.25%.  Additionally, a whole range of benefits were offered such as gym membership discounts.

Advisers were tasked with trying to compare PruProtect/Vitality with the standard plan design offered by the existing insurers.  What weight do you apply to a plan that only pays 25% for a stage 1 cancer but includes a wide range of unique conditions such as pulmonary embolus and detached retina? 

Over the past fifteen years the differences between the Vitality plans and the ‘standard’ plans have reduced.  Vitality offered a booster option which ensured that all cancers, heart attacks and strokes were paid at 100% whilst the mainstream insurers introduced ever-increasing numbers of additional payment conditions covering less advanced cancers and many other relatively rare conditions.  Nonetheless it remained extremely difficult to assess the competing merits of the various designs. 

In recent years there has been a push for greater simplicity and Vitality has recently risen to this challenge by replacing its range of serious illness plans with a far simpler plan design.  Their new offering provides three plans called 1X, 2X and 3X.  

The 1X reflects the original plan design where the sum insured reduces by the percentage paid on a claim, thus on a £100,000 plan a claim for a stage 1 cancer would pay 25% and the remaining plan value would drop to £75,000.  The 1X plan only covers those conditions paying between 25% and 100%. 

The 2X and 3X plans are more akin to the typical critical illness plan in that all ABI conditions pay 100% of the sum insured.  Additionally, the 2X allows multiple claims up to 200% of the sum insured and extends cover to those conditions that pay 15% of the insured sum.  The 3X is their most comprehensive plan paying multiple claims up to 3 times the sum insured and extending coverage to 174 conditions ranging from 100% down to 5%.

However, the push towards simplicity has stalled when it comes to the plan provisions document which remains a colossal 158 pages and defies the most ardent adviser from spending the three hours required to digest it. 

Premium levels and underwriting notwithstanding it is gratifying to see a more easily understood plan design without the wide range of options and add-ons that previously served to confuse. 

CIExpert has now included both the current and previous Vitality plans within its comparison site and this will make life far easier for those advisers looking to compare these disparate plans.  CIExpert has been advocating the merits of “Grouping” conditions to further simplify understanding for advisers and clients so that the relative merits of different plans can be more readily understood.  AIG took a lead on this approach and we expect others will follow.  CIExpert uses this approach in its comparative system so that the assessments can include all the conditions that are unique to Vitality and yet still easily compared against CIC plans, thereby ensuring that Consumer Duty reviews are truly comprehensive. 

Alan Lakey is founder of CI Expert

https://ciexpert.uk

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