Fewer surprises in reviewable deals

As an adviser, are you wary of recommending a reviewable critical illness cover product to your client because you are worried about rates being increased for any old reason the insurer decides?

Do you suspect unrealistically low prices at the outset closely followed by a huge hike just to increase profit margins? You’ll be glad to hear that the new advice from the Association of British Insurers on reviewable premiums has quashed the possibility of this happening.

In 2002, when Swiss Re pulled out of the guaranteed premiums market for critical illness it left many providers unable to offer cover on guaranteed premiums which created a renewed interest in reviewable premiums. Although guaranteed premiums were still the bigger seller there was a marked increase in take-up of reviewable premiums.

Because of this, the Financial Ombudsman Service recognised the importance of ensuring that when reviews came round, they were handled fairly. As a result the ABI, FOS and Financial Services Authority established a robust framework for dealing with reviews. The recent ABI advice on this focusses on the practical considerations insurers and advisers must take into account to ensure customers receive the best service and advice and have no reason to complain when reviews take place.

The advice to insurers centres on making reviewable premium products transparent and fair. What this will mean in practice is that all insurers will have to have an auditable process for calculating premium increases and any rise must be for a valid reason and proportionate to that reason. Key here is that these reasons must be based on the realistic expectations of insurers.

For example, if an insurer’s claims history was not what they expected as a result of substantial medical advances then the valid reason would be unforeseen advances in medical science. To ensure consumers are aware of why and when they should expect a review, the reasons the insurer will take into account must be stated in marketing material and product literature.

As all insurers are under an equal obligation to apply increases proportionately and fairly, as an adviser you may want to look at this list of reasons in a fact-based comparison when selecting the most appropriate reviewable premium for your client. This should make it easier to recommend one reviewable product over another.

As with all sales of protection the message for advisers is to make sure that all advice is clearly explained to clients and documented. Armed with this information clients will be fully aware of all aspects of their cover, which means they won’t get any surprises when a review comes up or when their premiums are raised.