40th anniversary champagne bottle balloon pop

How CI has changed over the last 40 years

07 August, 2023

Critical Illness cover

It’s official! Critical illness cover is middle aged. And as it matures it is becoming all the more refined.

Critical illness cover has come a long way since its inception 40 years ago. But as the world changes at pace, so too do the protection needs of consumers.

More than ever consumers want comprehensive cover that will pay out when they need it most and that can be obtained at a cost that represents value for money. And increasingly they want customisable cover that can be tailored to their personal circumstances and maximum flexibility for the product to evolve with them as their life changes.

As the cover enters its fifth decade, we take a look at how critical illness cover has changed over the last 40 years and potential future developments.

South African origins

The first critical illness product was launched on 6 August 1983 in South Africa under the name dread disease insurance.

The brainchild of Dr Marius Barnard, a heart surgeon who alongside his brother accomplished the first human heart transplant, it was designed to meet the same need it meets today: providing financial protection to individuals following the diagnosis or treatment of a critical illness.

“Dr Barnard recognised that although he could treat patients with conditions they would have died from in the past and save their lives physically, financially they were dead; they couldn’t work anymore,” says Tim Lewis, senior proposition innovation manager at Zurich who has been instrumental in many developments in the market.

Initially, the insurance covered four primary conditions: cancer, stroke, heart attack and coronary bypass surgery.

Since 1983, the cover has become part of the insurance landscape in many countries around the world. Other names for it include trauma insurance, serious illness insurance and living assurance, though it is now most commonly known as critical illness cover.

Condition ‘arms race’

For a long time nothing really changed other than the addition of conditions. Products now typically offer financial security against the diagnosis of many more conditions after providers rushed to find the next condition to add to an ever-growing list.

The number of conditions covered ticked up slowly at first, standing at 32 for Zurich in the early noughties, before the market exploded as insurers entered into a conditions ‘arms race’.

Today, Zurich covers almost 100 conditions. “Wider coverage is great but across the industry there can be an awful lot of valueless stuff,” says Lewis. “Providers have added to their list of conditions but not charged any more – that tells you how likely people are to claim on those conditions.”

Thankfully, the race has ended. Providers are now more intent on finding ways to genuinely enhance their product and improve customer outcomes. “That is firmly where Zurich’s focus lies,” says Lewis.

Two-tiered cover

Over five years ago years ago, we saw the advent of a modular proposition of core cover to which an extra level of coverage could be added. Zurich launched its Select product in 2018.

“It took the market by storm at the time,” says Lewis. “And it really is testament to the quality of the product that it still holds its own and competes with the best products in the market.

“But with that said, the critical illness market is very competitive and it never stands still, so it’s not surprising that it’s starting to show its age.”

Some providers have enhanced their products, leading them to score highly on comparison tools for advisers such as CIExpert and ProtectionGuru Pro. Often this is because they offer generous payouts for additional payment conditions, albeit for significantly higher premiums.

For proposition managers like Lewis, product development is about balancing coverage and quality with cost.

“Proposition managers like me are the ultimate customer champions – we’re always looking for ways to improve products and achieve better customer outcomes,” he says.

“The customer is at the heart of every decision we make. We also have to balance the needs of many other areas such as underwriting and claims and pricing because what’s the point of having the greatest feature or benefit in the world if it’s a nightmare to administer and so expensive that nobody buys it?

“It’s a bit of a juggling act – balancing the needs of the customer with an appropriate commercial focus.”

Important product

The answer for Zurich has been to give customers more choice and flexibility, to allow the cover to evolve as people’s lives change. One key area of focus is children’s cover, a part of the market which is still evolving and ripe for innovation.

With further flexible features in the offing, it is an approach designed to allow advisers to create bespoke coverage for their clients.

While greater customisability would surely be welcomed by advisers and their clients, what hasn’t changed is that critical illness cover remains a really important product. Cancer is still the most claimed on condition, followed by heart attack and stroke.

Medical advancements mean we are leading healthier and longer lives. A male born in the UK in 1983, the year Dr Barnard had his brainwave, had a life expectancy of 71.3 and a female was expected to live to 77.2¹, according to the Office for National Statistics.

In the 40 years since, life expectancy has been increasing driven by advances in healthcare and improvements in living and working conditions. In the latest period, 2018 to 2020, life expectancy at birth in the UK was 79 years for males and 82.9² years for females.

We are also now more likely to survive a critical illness such as cancer, but that is not to say that life will go back to normal following treatment. Many who survive cancer and other critical illnesses may feel a prolonged effect on their physical and mental health, as well as their financial wellness.

Myth busting

Encouragingly, consumers are becoming better educated about critical illness cover and the benefits it brings as product providers and their intermediary partners strive to bust the most common myths surrounding it.

The most commonly held myth is that the cover never pays out. In 2022, 91.6%³ of critical illness claims were paid, according to the latest figures from the Association of British Insurers (ABI) and Group Risk Development. Material non-disclosure was the reason for the majority of the declined claims.

Those who did disclose all relevant information at the point of sale were supported by the insurance sector to the tune of £1.27 billion in payouts from both group and individual protection policies, with the average claim coming in at £66,296.

“With another year of bumper figures and the vast majority of these claims being paid, it’s encouraging to see that individuals and their families continue to be supported through insurance,” says Rebecca Deegan, head of protection and health at the ABI.

Another perhaps lesser-known myth is that children’s cover is included ‘for free’ or ‘at no extra cost’ with those providers that do not offer the choice to select it or not. The reality is that any cover worth having does not come for nothing.

“If it was for free it would be valueless,” says Lewis at Zurich. “Another way of thinking about it is that everyone is paying for it.

“We don’t think that anyone should be paying for cover that they will never use, so for us children’s cover is an optional addition to any adult critical illness policy.”