The critical illness insurance industry needs to work harder to improve consumer trust and understanding, financial research company Defaqto has warned.
Defaqto said the industry's image had taken a battering from negative publicity over claims being turned down and unclear terminology in policy documents.
Defaqto's head of life and protection Nick Telfer said: "The future for critical illness hinges on rebuilding customer trust and developing products to meet the modern consumers' needs.
"I am concerned that the ultimate result of the current negative views surrounding critical illness is that people will be deterred from considering this type of cover, potentially leaving them wide-open to the consequences of serious illness.
"It appears that critical illness insurance suits everybody apart from reinsurers with the consequence that underwriting requirements are becoming stricter and product terms less attractive as they attempt to minimise their exposure to the risk."
He believes the industry will split into different offerings - a basic non-advice product focused on the major conditions and a more integrated health management proposition.
The report says negative publicity on high-profile cases that have been turned down for what often seem technical reasons has undermined confidence in critical illness insurance. However the product remains an important element of family protection insurance.
Defaqto believes that lack of education is at the root of some of the problems and that the industry needs to come together to promote a positive image
Telfer added: "The evidence from providers' published statistics is that the vast majority of claims are paid and this is the message the industry needs to get across.
"We believe that rather than providers doing this individually, they need to work together through an industry-sponsored campaign to promote the proposition to the consumer."
Suggested reforms include adding a cap and collar to reviewable rates and bringing clarity to guaranteed insurability terms.
Defaqto also said the issue of total permanent disability remains a problem in creating a negative image for the industry.
