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Section 6 Case Study - Critical Illness Cover
6 Case Study - Critical Illness Cover
6.1 Introduction
In this section, we present some preliminary information in relation to the
market for critical insurance cover (CIC). We have provided a worked
example relating to this insurance market because data we have received
from the FOS and the Food and Expenditure Survey (Table 10) show that
there appears to be a disproportionately large number of complaints brought
to the FOS about these products and that those claims are for relatively
significant amounts.
This case study provides particular focus on the consumer insurance market.
Some of the costs and benefits resulting from the proposals are exceptionally
difficult to quantify accurately and as such we have not provided estimates of
the impact associated with these. Any assistance that we might receive from
consultees would greatly assist in any future cost benefit analyses
undertaken.
This case study is not intended to provide a definitive estimate of the costs
and benefits associated with the introduction of these proposals. We have
identified many evidence gaps that we would seek assistance completing as
part of the consultation exercise. Therefore, the estimates presented here
should be considered more a guide or a template for further analysis rather
than a final estimate of the economic effect.
6.1.1 Product and Market Characteristics
Critical Insurance Cover (CIC) normally pays out a lump sum benefit on
diagnosis of an illness that meets the defined conditions within the policy.
Generally CIC policies will expire on payment of a claim, although some
policies offer an option, at additional cost, to extend cover in these
circumstances. The specific illnesses covered as part of the policy vary from
policy to policy; however there are generally a core number of illnesses
covered in all policies. The majority of CIC policies are sold as a secondary
purchase at the same time as taking out a mortgage (92%). According to
recent research work undertaken by the Financial Services Authority (2007),
critical illness insurance is seen as a particularly complex product and is often
sold on an advised and face-to-face basis.
London Economics
June 2007 40