The majority of critical illness insurers are currently focused on the worksite channel. (See Chart 1.)
These products are typically stand-alone or acceleration products, sold via payroll deduction. They can be built either on an individual or a group chassis. (See Chart 2 for typical types now available.)
The question is, what types of CI policies might we see in the future, and what are the prospects for expanding this market?
To get some ideas, designers can imbed “ix” (the probability of incidence for a critical illness) into the chassis of various products (in the same fashion that life policy developers imbed the “qx,” or the probability of death, into the policy design). Then, they can add to the ix the expenses and investment income necessary to price the product.
Doing so enables designers to create new products for a variety of distribution channels. For instance, CI policies created for individual distribution channels can be designed as either term life or universal life insurance products.
Already, some insurers are moving into the employee benefit channel, with CI benefits imbedded in a group life chassis as an acceleration or supplementary rider. Others are distributing CI products via the Internet and direct marketing.
Further, a new marketing channel for the mortgage and credit market is emerging. In the U.K., as you may know, the majority of CI policies sold are mortgage-related. Now, one United States company has begun selling CI mortgage protection.
At the present time, U.S. insurers distinguish their CI policies by offering differing: critical conditions covered; adjustment of waiting periods; premium guarantees; acceleration amounts; pre-existing conditions; maximum age issues; maximum amounts; etc.
Industry sources tell me that, going forward, they will continue tweaking products, so they can continue differentiating their offerings and also so they can provide choice to consumers.
The flexibility in design that results can prove extremely advantageous to buyers. For families and individuals, for instance, CIs lump-sum payment can be used for various reasons, such as: to replace reduced earnings; to assist with mortgage payments; to pay off personal debts; to provide additional cash liquidity for medical treatment or for college tuition; etc.
For business owners, CI products can be used as part of buy/sell agreements. The plans can be set up to provide shareholders with a CI insurance benefit or to enable working shareholders to buy out a shareholder suffering from a CI condition.
Another business use: CI products can be designed around key person insurance, to enable owners to pay-off creditors.
With greater understanding of the product and its multiple uses, the CI marketplace will inevitably grow. Sales will expand in the individual case arena, higher-end situations, group benefits, and health programs. Theyll also expand in disability markets, Internet sales, and, most importantly, the financial services market (through mortgage-related CI products and/or credit-related CI products).
This will have important benefits. For instance:
Career agents, independent agents, and producer groups can include the product in a client’s insurance portfolio as another financial planning tool. As their CI sales grow, this will provide a significant impact on their bottom lines.
Insurers can use CI to replace declining life sales by imbedding it into various life, health and disability products. More importantly, since this is a relatively new product in the U.S., CI insurers will have a potentially higher return on capital, along with significant opportunity for profitability and growth.
Consumers will benefit from owning the coverage, and from the growing flexibility and choices in CI design.
Since consumers will ultimately determine the success of CI, it is extremely important for producers and marketers to focus on what options consumers want. Further, the industry must educate consumers on how the product fills gaps in coverage for calamitous life events; and show how need for the product is not dependent on one’s socio-economic status.
Daniel R. Pisetsky is managing director of US Living Benefits, Manchester, Conn. His e-mail is: [email protected].
Reproduced from National Underwriter Life & Health/Financial Services Edition, March 25, 2002. Copyright 2002 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.