The market for advising wealthy individuals about critical illness cover in Asia is relatively untapped, but that could change when industry figures come to realise the benefits, a recent Breakfast Briefing heard.

Talking to clients and prospects about the value of critical illness cover, a market so far relatively young in the Asian region, is a real value-add proposition and one that wealth managers should embrace, a recent Breakfast Briefing in Singapore heard.

Stories of how the lives of business owners and senior professionals have unravelled, causing major disruption and stress, because they lacked this form of cover were shared with an audience that gathered recently at the Swissôtel The Stamford to discuss critical illness cover (CIC). The event was called A Wake-Up Call for Asia’s HNWs – Is Your Human Capital Properly Protected Against Critical Illness? It was sponsored by Friends Provident International.

Among the themes coming out of the event were that some private bankers appear not to be sufficiently motivated to sell such policies, possibly due to lack of sales incentives, even though they could reap dividends not least in making client relationships stronger.

People in the wealth management industry should embrace the case for using CIC themselves, argued Toby Simpson, regional sales director, Friends Provident International. “In reality we are all very close to it,” he said.  

Simpson’s colleague, Andrew Waddell, managing director at FPI, made the point in kicking off the Breakfast Briefing that many people wrongly assume that they will not be affected by critical illness or that they do not need to prepare for how it will affect their business and personal life.

“A lot of what you have always done stops and your whole life changes course by 180 degrees,” Waddell said. “Getting healthy again becomes your complete focus in life,” he added. Besides the cost of medical treatment are costs of time out of work, disruption, as well as the emotional costs from battling against critical illness. Critical illness cover has real value in giving people cover not just for their immediate medical bills but for the freedom of action that a payout can give, he said. “The best advice there is is to speak to someone who has had a [critical illness] policy where it was used and where it paid out,” Waddell said.

One problem about accepting the need for CIC in Asia, perhaps, is that a lot of families feel it is bad luck to talk about the risk of becoming severely ill and this is a subject that people are uncomfortable about discussing, Mike Buffini, associate partner with St James’s Place, said. But he went on to say that he talks to clients about CIC on a “daily basis”.

“Most people haven’t really addressed it or thought about it,” he said. “I do have time to talk to clients about it and I think it’s crucial. To become that `trusted advisor’ you have to spend the time."

To illustrate what is at stake, Buffini gave an example of a person who had CIC, but as soon as children’s school fees had been paid off, the policy was stopped. Two years later, the person’s wife became seriously ill, requiring the person to take time off work, fundamentally alter work and dig deep into savings. Some, if not all, of that would not have been necessary had the policy continued, he said.

Fellow panellist Mark Smallwood, North Asia coverage team head, Singapore, at Deutsche Bank Wealth Management, discussed what he sees as the big opportunity for financial advisors and private bankers to get to grips with critical illness cover. He said the larger banks have the ability to create the capacity for such cover. As for IFAs, he said while some of them are used to dealing more with the mass affluent end of the market, their independence meant they were in a strong position to talk to clients about CIC.

To understand the market, wealth managers must differentiate between local Singaporeans and permanent residents, and expats in the city-state – and beyond, he said.

“It [advice on CIC] is a big differentiator. The important aspect here is to know what part of the market you are after. From a private banker’s perspective it is difficult sometimes to be a fully trusted advisor. In the IFA segment, you are getting a really interesting situation. It opens up a huge opportunity for you because of the sort of clients you could be working on,” he said.

Lump sums
One important aspect to payments in CIC is the lump sum payment. This payment, if you meet the definition of the disease, allows a level of financial freedom. The lump sum is not tied to the cost of the treatment. “Lump sum payments can improve your financial flexibility, such as how to work or not,” Jill Hoffman, chief operating officer, Munich Re, told the audience. “A critical illness in the family is devastating. If it is you, your spouse or your child, you may want to take more time off work to spend with them. The CIC helps give that flexibility to allow you to take time off work or minimise the impact to your savings,” she continued. There are examples of children buying CIC to help cover the costs of looking after parents in such situations, she said, citing the example of where this has happened in South Korea. “The reason they [children] do this is that they know they are going to have a financial burden if a parent falls ill,” she said.

FPI’s Simpson said that with lump sums, it is important to understand that only up to 20 per cent of the amount will be needed to cover the actual medical costs for a particular condition; however, if a person comes down with a critical illness it is often the case that such a person may have another health issue later on. That is why the first critical illness policy needs from the outset to be a strong one, he said.

Deutsche’s Smallwood discussed how, in conversation with clients in Singapore, he comes across the situation where clients, aged in their 40s or 50s and often with low costs on areas such as education, are spending considerable amounts on their own lifestyles but not appreciating the need to protect against serious trouble from a critical illness.

“For people who have critical illness cover and for people having to make claims, they have in effect protected some of that lifestyle from disruption caused by a critical illness,” he said. Smallwood said it is important to distinguish between standard medical insurance, which is designed to cover the specific medical costs of an illness or accident, and CIC, where the payout of a capital sum can be used to mitigate the additional incidental costs of a serious medical event, such as relocating or funding an income gap or long-term income reduction.