San Juan, Puerto Rico
When many insurance people talk about critical illness insurance, they say that it’s not selling and that it’s too complicated, risky and expensive, according to Jean-Marc Fix.
But Fix, who is assistant vice president, research and development, at Optimum Re, countered each of these arguments in a presentation here at the annual meeting of the National Alliance of Life Companies.
It’s true that CI insurance is still “a tiny part of the U.S. market,” said Fix, who then added that “success is relative and it is big enough for most companies.”
The product has been wildly successful in Japan, the U.K. and Australia, he said, and in the U.S. it has “a big potential market consisting of women, blue-collar workers, singles and worksite sales.”
Is it too complex? According to Fix, the basic concept is simple and appealing: the product pays if the insured gets one of the listed diseases. Nonetheless, there is a need to price, market and underwrite the product correctly, he said, adding that this certainly can be done because “we are in a technical business.”
The key here, he said, is to train the field for the product. “The field needs to know what’s covered, how to explain it and to say how much is paid.”
Insurers need to “provide well-designed tools” for the field and train on “understanding covered conditions.”
According to Fix, “most agents selling this product are life agents who need to understand the difference between a life product and one that pays a living benefit.”
Fix said it is important for insurers to tailor price and benefits to the market being sold. This can be done in a number of ways, he explained, such as adjusting the covered diseases, the payout, commissions, marketing materials and the payment method.
Regarding the product’s pricing, Fix said insurers first had to find a disease’s incidence rate among the general population and then adjust those rates for the insured population. Pricing should reflect these rates, he added.
When the product is filed with state insurance departments, he said, there could be some confusion because “claims are triggered by health conditions, but the product is designed and sold like a life product.”
He said he thought that personal interaction by insurers with their insurance departments “is key to getting them to understand critical illness insurance.”
Underwriting is one of the diciest areas concerning the product because of the high potential for anti-selection. “If you thought anti-selection was difficult with life insurance,” Fix said, “wait until you see it with critical illness.”
It’s not like life or health insurance, he explained, and it needs “a specialized manual.” It also demands special training of underwriters, he continued, “and maybe a dedicated team of underwriters.”
Claims under critical illness policies is another area calling for special attention. “A lot of careful analysis needs to be done to see if the policy’s definition is met,”
The definition of a claimable event “has a very significant impact on how your product will perform.”
When reviewing claims, insurers “need to look carefully at the initial file for evidence of anti-selection.”
In response to the charge that the product is too expensive, Fix said insurers must “know what your market can afford and what you need to pay your agents.”
Expense can also be adjusted, he said, by tailoring the benefits as to what is covered and how much is paid out.
As for whether the product is too risky for insurers, Fix advised them to get help from reinsurers or consultants on matters of product design, assumptions, pricing and risk.
“The future of critical illness is there for those who make it happen today,” Fix concluded.
Mike Simard, president of Windsor Life Insurance Company, said critical illness insurance “is the life ring of small companies.”
It allows them, he said, to “enter markets that are difficult to reach with traditional products.” Some of these markets, according to Simard, are: the health insurance auxiliary product market; the banking and financial institutions market; the small business market and the debt redemption market.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 5, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.