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When Will CI Reach Its Tipping Point?

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A tipping point commonly refers the moment when an idea or product suddenly breaks forth as a tremendous success. This usually happens after years of struggle and obscurity. It often happens because of a specific event.

Most insurance experts agree that critical illness insurance has not yet reached its tipping point in the United States. However, it has reached it in many other parts of the world. For example: nearly 700,000 CI policies were sold in 1998 in the United Kingdom alone, where the in-force book had reached 2.4 million contracts.

No one knows when that moment will come here. So, for now, CI watchers in the U.S. are concentrating on learning more about the coverage, and its possibilities.

For the record, then, CI insurance is insurance that pays lump sums of money in the event of severe (but quite common) illnesses. Chart 1 lists the six core illnesses covered by almost all the contracts here, plus some optional coverages that can be added. The coverage design can be very flexible, ranging from acceleration of life insurance death benefits for CI to stand-alone lump sum payment in event of a critical illness.

As youve no doubt heard, the brother of the famous heart transplant surgeon Dr. Christiaan Barnard first developed the coverage in South Africa in the early 1980s.

The question for NU readers is, does the product have anything going for it that citizens in the U.S. need and want? I think so.

There is the obvious appeal of receiving lump sums, as living benefits. Loss of breadwinning-power, through severe illness, is just as heavy a financial burden for consumers to bear as loss of it through death. And, since medical insurance may not cover many out-of-pocket and indirect expenses associated with major illnesses, chances are most CI patients will face such burdens!

There is another relevant point, not generally understood by field forces and customers: In the important mid-life years, the CI risk is far greater than risk of death! (See Chart 2.) My guess is, this wasn’t the case 100 years ago. Back then, people tended to die immediately, once a critical illness struck. Now, they don’t die; they become disabled. That’s why people need CI coverageto help pay the costs of surviving such an illness.

Now, lets look at how the product is faring in the U.S. As I mentioned earlier, CI insurance hasnt yet reached a tipping point here. Its still in the years of struggle.

But a straw poll I did recently with sources in the business shows there are plenty of success stories–for both the accelerated death benefit version of the product and the lump sum stand-alone version. (The two versions seem to be in a 50/50 popularity split.). My sources reported successes in both the individual and worksite lines, and also in the high-earning professionals market.

This is significant: The majority of my respondents said CI sales were up in 2001. (The minority said the sales were flat).

Which type of product was deemed “most popular”? It was a $100,000 term life product that accelerates 50% of the death benefit in event of critical illness. Quoting my source: “They just love it!”

I asked: “What is the best marketing strategy for CI insurance?” The best answer: “Relentless education–first of the field force, and then of the customers!”

I term that the best answer, because I believe that’s exactly what will lead to the CI tipping point in the U.S.

John M. Bragg, FSA, ACAS, MAAA, is actuarial consultant at John M. Bragg and Associates, Atlanta; past president of Society of Actuaries; and past CEO of Life Insurance Company of Georgia. You can e-mail him at [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.