In 1945, the trade union for elevator operators in New York decided to go on a strike in a move to secure better working conditions.
Up until then, many people had been scared to use elevators by themselves, hence the need for human operators inside the lift. But as the strike went on, elevator manufacturers evolved their product to build more customer confidence and the role of elevator operators became obsolete.
In the 1980s, a restaurant chain launched a new “third-pounder burger” to rival the famous “quarter-pounder”. It was the same price – and of course a third is bigger than a quarter, so you’d think it would be a good deal. But sales were low and the product was pulled, because even though customers were getting more for their money, they thought they were getting less.
I dug up these examples (without extensive fact checking) following a couple of recent pieces in Money Marketing about protection insurance.
Is Money Marketing right? Does the protection industry have a claims problem?
I’ve defended, promoted (and sometimes criticised) the protection sector for the last 23 years, and led the campaign to publish claims stats in the 2000s. So when I come back from holiday to see headlines like “The protection industry has a claims problem” it gets noticed.
Is Money Marketing right? Does the protection industry have a claims problem?
There has been plenty of debate on this recently and while this isn’t the place to get into the complex details of individual claims, overall – even though 98% of all claims are paid (which used to be 20% lower before claim stats were published) – yes, I think it does have a point.
Total and permanent disability (TPD) was a good idea when it was invented. Back then, critical illness (CI) plans only covered a couple of conditions, typically heart attack, stroke and cancer. So, adding something that (sort of) says insurers will pay out for lots of other things as well seems like a good idea, eh?
Insurers are unlikely to remove or change it because of any perceived first mover disadvantage
And remember that long-term protection policies aren’t like general insurance. Insurers cannot change the terms and conditions every year as they might do with car or home insurance.
But CI policies have evolved massively since the 1980s. Policies now cover 70 to 100 conditions (or more) and there aren’t many things left that would fall under the TPD definition. But insurers are unlikely to remove it or change it because of any perceived first mover disadvantage.
If you’re an adviser or customer choosing a policy, you’d rather have it than not. And you certainly wouldn’t want the Financial Ombudsman Service ruling it as mis-sell in 20 years because you recommended a policy that didn’t have it instead of others that did.
Likewise terminal illness benefit (TIB), which is included with most life insurance plans. It means you don’t literally have to die to get the money. But there are situations in other countries where this benefit is not included and where the policyholder is expected to die very soon and the family desperately need the money.
Sometimes good ideas, eventually, and often unexpectedly, turn bad
What can happen is other companies come along and buy the policy for, say, 70% of the sum assured. The family gets the money they urgently need, and the company gets the other 30% a few months later when the person dies.
That’s why we have TIB, which was a very good idea, but, as with TPD, it relies upon a medical professional predicting how long somebody may or may not live for (or whether a certain medical condition is ‘permanent’), which is becoming ever more difficult as medial science progresses. And that’s before we get into the dilemma of what to do if the policy is in its final year.
It’s a small number of claims overall, but both these scenarios have understandably created damaging press coverage for the industry over the decades. It is not a new issue, but it is one that keeps coming back.
They were good ideas at the time and most claims under these areas continue to be paid, so it’s not as simple as just removing them.
But sometimes good ideas, eventually, and often unexpectedly, turn bad.
The protection industry needs to find solutions to these challenges before that happens.
Kevin Carr is managing director of Carr Consulting & Communications, and chief executive of Protection Review
