2012 Star Ratings. A summary of preliminary criteria. Income Protection Insurance

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2012 Star Ratings

A summary of preliminary criteria

Income Protection Insurance

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Tables

Table 1 – Income Protection Insurance criteria ... 5

Table 2 – Star Rating score boundaries for Income Protection Insurance ... 6

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About Defaqto

Defaqto is an independent financial research company specialising in rating, comparing and analysing financial products.

Since 1994, Defaqto has built the largest, whole of market, financial product database and become one of the leading providers of financial product data in the UK. We now cover over 30,000 products across banking, life, pensions, investments and general insurance.

Our experts validate and analyse the data to provide insight and consultancy to all layers of the financial services sector including IFAs, mortgage and general insurance brokers, providers, web aggregators and the public sector.

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An introduction to Star Ratings and our methodology

Since 2000 Defaqto has been producing Star Ratings for a wide range of financial product areas. These have been created to help consumers, and in some cases financial advisers, identify at a glance which products could be suitable for their needs based on the cover and features they offer.

Our Star Ratings are calculated using a scoring method called Data Numerical Analysis (DNA). Each product feature and benefit is scored from 1 to 5, with a score of 5 denoting that the product has the highest

characteristics in the market for that feature or cost; a score of 1 indicates it has the lowest.

Totalling the individual DNA scores across any chosen range of features and benefits gives an overall DNA score, which can be used to rank products in terms of their overall benefit to consumers.

Using our expert industry and product knowledge and our DNA scoring methodology above, our research and insight analysts have created Star Ratings for Income Protection Insurance.

We have decided on which criteria are used to compare the products available in the current market and chosen each of the ‘Bar’ levels for the 5, 4, 3, 2 and 1 Star Rated products. We invited representatives from across product providers of Income Protection Insurance to a discussion forum and feedback from these sessions has been reviewed and considered as part of our decision making process.

These updated DNA scorings feed into our data, research and comparison tools, Aqueous Online and Compare, and allow qualitative comparisons of product features and benefits available across most financial industry sectors. For further information on these tools please contact us on 01844 295 546.

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Rating criteria

For the Income Protection Insurance Star Ratings the following criteria have been chosen and used in our decision-making process.

Feature or benefit

Underwriting Process Employed Houseperson Maximum Benefit

POS Decision Given Carers Benefit

Premium Discounted when Elements of

Cover Excluded Relapse period

Financial Underwriting Hospitalisation benefit

Annual Statement Issued Effective Max % for £25k

Termination Age Effective Max % for £50k

Limited Benefit Term P11D Benefits Included

Option to Increase or Decrease Deferred

Period Dividend Income Included

Option to Increase or Decrease Term State Benefits Deducted Option to Increase or Decrease Benefit Continuing Income Deducted

GIO - Set Intervals Other Insurance Deducted

GIO - Maximum Age Pension Income Deducted

Mortgage/Loan Maximum Increase Own Occupation Throughout Claim Promotion/Salary Maximum Increase Deferred Period

Benefit Amount - Index Link 1 Day Deferred Period

Additional Indexation Two Deferred Periods

No. of Indexation Refusals Range of occ definitions coverage Indexation Costing Basis Claims Support Services Included WOP deferred as IPI Health & Wellbeing Services Included

Guaranteed Premium Rates Claims Stats Published

Reviewable Premium Rates Number of Exclusions

Career Break

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Core criteria

For Income Protection Insurance products there are no core criteria set in for the 2012 Star Ratings.

Star Rating boundaries

Based on our analysis of the current and likely DNA scores of products in the income protection insurance market, and any planned changes to DNA scoring bands as described overleaf, the Star Rating boundaries for 2012 will be as follows:

Star Rating Product DNA Score

*

< 85

**

>= 85

***

>= 101

****

>= 140

*****

>= 157

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DNA scoring criteria

As part of our preparation for 2012 Star Ratings, we have reviewed product DNA scores. The proposed DNA scoring bands, which will be used, are shown in the tables below. Some amendments may occur before a final release for 1st February 2012.

Underwriting Process Employed

Underwriting process employed

1 No tele-underwriting

2 Online submission or little t tele-underwriting 3 Online submission and little t tele-underwriting 4 Big T tele-underwriting

5 Big T tele-underwriting

POS Decision Given

A decision can be given at point of sale

1 A decision cannot be given at point of sale 2

3 4

5 A decision can be given at point of sale

Premium Discounted when Elements of Cover Excluded

Provider discounts premiums where an element of cover has to be excluded

1 Premiums not discounted for exclusions 2

3 4

5 Premiums discounted for exclusions

Financial Underwriting

The point at which financial underwriting is applied

1 Financial underwriting undertaken at claim and inception 2 Financial underwriting undertaken at claim stage 3

4 Financial underwriting undertaken at inception

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Annual Statement issued

Annual statements are issued

1 Annual statements are not issued by the provider 2

3 4

5 Annual statements are issued by the provider

Termination Age

The range of ages to which the plan can run

1 One specific age only

2 All ages from 50 to 60 or two specific ages 3 All ages from 50 to 64

4 All ages form 50 to 67 or a full range of specific ages 5 All ages from 50 to 69/70 or more

Limited Benefit Term

Option for benefits to be paid for a limited period

1 Limited benefit – 1 option

2 Limited benefit term – 2 or more options 3 Full term only

4 Full term plus 1 limited benefit term option

5 Full term plus 2 or more limited benefit term options

Option to Increase or Decrease Deferred Period

Vary the deferred period after start date (other than GIO)

1 Deferred period may not be increased or decreased 2

3 Deferred period may be increased or decreased 4

5 Deferred period may be increased and decreased

Option to Increase or Decrease Term

Vary the retirement age after start date (other than GIO)

1 Term may not be increased or decreased 2

3 Term may be increased or decreased 4

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Option to Increase or Decrease Benefit

Vary the benefit amount after start date

1 Benefits may not be increased or decreased 2

3 Benefits may be increased or decreased 4

5 Benefits may be increased and decreased

GIO - Set Intervals

Guaranteed insurability available at set intervals

1 Guaranteed insurability at regular intervals not available 2

3 4

5 Guaranteed insurability at regular intervals is available

GIO – Maximum Age

Maximum age to exercise guaranteed insurability option

1 Maximum age for increase less than 50 2

3 Maximum age for increase 49 or 50 4

5 Maximum age for increase greater than 50

Mortgage/Loan Maximum Increase

Maximum increase available for mortgage/loan option

1 GIO on mortgage/loan increase not available 2

3 Maximum GIO on mortgage/loan £3,000 or less

4 Maximum GIO on mortgage/loan between £3,001 and £8,000 5 Maximum GIO on mortgage/loan greater than £8,000

Promotion/Salary Maximum Increase

Maximum increase available for promotion or salary increase GIO

1 GIO on promotion or salary increase not available 2

3 Maximum GIO on promotion or salary increase £3,000 or less

4 Maximum GIO on promotion or salary increase between £3,001 and £8,000 5 Maximum GIO on promotion or salary increase greater than £8,000

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Benefit Amount - Index Link

Benefit amount index linked

1 Benefit not indexed 2

3 Plan only available with indexation 4

5 Indexation available as an option at outset

Additional Indexation

Indexation can be added to the plan after commencement

1 Indexation cannot be added after commencement 2

3 4

5 Indexation can be added after commencement

No. of Indexation Refusals

Number of refusals before indexation ceases to be offered

1 The offer to index can be refused only once 2 The offer to index can be refused twice 3 The offer to index can be refused three times 4 The offer to index can be refused four or more times 5 The offer to index can be refused any number of times

Indexation Costing Basis

Age used when costing indexation increases

1 Indexation not available 2

3 Based on age attained or on age at outset plus a factor of 1.4+ 4 Based on age at outset plus a factor of <1.4

5 Based on age at outset

WOP Deferred as IPI

Waiver of premium (WOP) deferred period as main policy benefit deferred

1 Deferred period for waiver longer than for main benefits 2

3 Deferred period for waiver same as main benefit

4 As benefits deferred period plus refund of premiums paid in deferred period 5 Waiver of premium commences before longer deferred periods

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Guaranteed Premium Rates

Guaranteed premium rates available

1 Premium rates are not guaranteed 2

3 4

5 Premiums are agreed at outset

Reviewable Premium Rates

Reviewable premium rates

1 Premiums reviewable at any time or age related

2 Renewable premiums annually reviewable or guaranteed only 3 Premiums guaranteed for five years then reviewed at any time 4 Premiums guaranteed for five years then reviewed annually 5 Premiums guaranteed for five years then reviewed five yearly

Career Break

Career break available

1 No career break allowed

2 Houseperson cover applied no reduction 3 Houseperson cover applied reduced premium 4

5 Premiums and benefits suspended

Houseperson Maximum Benefit

Maximum housepersons' benefit

1 Housepersons’ benefit less than £5,000 pa.

2 Housepersons’ benefit between £5,000 pa and £9,999 3 Housepersons’ benefit between £7,500 and £12,000 4 Housepersons’ benefit between £12,000 and £15,000 5 Housepersons’ benefit greater than £15,000 pa

Carers’ Benefit

Benefit payable for carers

1 Carers’ benefit not available 2

3 4

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Relapse Period

Relapse qualifying period

1 Relapse covered within three months 2

3 Relapse covered within six months 4

5 Relapse covered within 12 months

Hospitalisation Benefit

Hospitalisation benefit available

1 Not available 2

3 4

5 Hospitalisation benefit available

Effective Maximum % for £25k

Effective maximum % benefit for income of £25k

1 Effective maximum benefit less than 50% 2

3 Effective maximum benefit between 50% and 60% 4 Effective maximum benefit equal to 60%

5 Effective maximum greater than 60%

Effective Maximum % for £50k

Effective maximum % benefit for income of £50k

1 Effective maximum benefit less than 50% 2

3 Effective maximum benefit between 50% and 65% 4 Effective maximum benefit equal to 60%

5 Effective maximum benefit 60% or greater

P11D Benefits Included

Benefits in kind are included in income calculation

1 P11D benefits excluded 2

3 4

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Dividend Income Included

Dividend income is included in income calculation

1 Dividend income excluded 2

3 4

5 Dividend income included

State Benefits Deducted

State benefits deducted from benefit amount

1 State benefits deducted 2

3 4

5 State benefits not deducted

Continuing Income Deducted

Continuing income deducted from the benefit amount

1 Continuing income is deducted 2

3 Continuing income only deducted if maximum benefit exceeded 4

5 Continuing income not deducted

Other Insurance Deducted

Income from other insurances deducted from the benefit amount

1 Other insurance income is deducted 2

3 Other insurance income only deducted if maximum benefit exceeded 4

5 Other insurance income not deducted

Pension Income Deducted

Pension income deducted from the benefit amount

1 Pension income is deducted 2

3 Pension income only deducted if maximum benefit exceeded 4

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Own Occupation Throughout Claim

Own occupation definition of disability available throughout a claim

1 Own occupation definition not offered 2

3 Own occupation for initial period only 4

5 Own Occupation definition of disability throughout available

Deferred Period

Range of deferred periods available

1 Offers one deferred period only

2 Offers more than one deferred period but not 4, 13, 26 & 52 wks 3 Offers 4, 13, 26, 52 wks deferred

4 Offers 4, 13, 26, 52 wks deferred plus one other 5 Offers 4, 13, 26, 52 wks deferred plus two others

1 Day Deferred Period

One week deferred period

1 One day deferred period not available 2

3 4

5 One day deferred period available

Two Deferred Periods

Two deferred periods in one plan

1 Not available 2

3 4

5 Two deferred periods available

Range of occ definitions coverage

Coverage of occupation classes by occupation definitions

1 Poorest range of occupation classes covered 2 Below average range of occupation classes covered 3 Average range of occupation classes covered 4 Above average range of occupation classes covered 5 Widest range of occupation classes covered

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Claims Support Services Included

Claims support services included

1 Claims support services not included 2

3 4

5 Claims support services included

Health and Wellbeing Services Included

Health and wellbeing services included

1 Health and wellbeing services not included 2

3 4

5 Health and wellbeing services included

Claims Stats Published

Provider publishes claims paid statistics

1 Claims stats are not published by the provider 2

3 Claim stats cannot be published due to insufficient claims 4

5 Claims stats are published by the provider

Number of Exclusions

Number of exclusions applying to the plan

1 More than 10 exclusions 2 Eight - 10 exclusions 3 Seven exclusions 4 Four to six exclusions 5 Three exclusions or less

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Promoting your Star Rating

We have a wide range of free resources to help you promote your Star Rating both internally to your employees and consumer facing teams as well as to your customers.

• A regularly updated online toolkit

• Communications templates, for example, posters, postcards, flyers and leaflets • Examples of communications material

• Training events for your marketing teams

• Stock content for communications and press releases

You’ll receive access to these resources upon confirmation of your licence. We can also arrange bespoke brainstorming or visioning sessions with your product and marketing teams and/or creative agencies. Please ask your Account Manager for more information.

Defaqto’s Insight Team

In addition to generating Star Ratings, and a regular series of Insight Reports, Defaqto’s Insight Team offers a wide range of consultancy services, including:

• Product analysis and product positioning • Whole of market product reviews

• Creation of Best Advice Panels

• Authoring of sponsored market or product guides • Consumer research.