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Critical illness insurance proponents claim CI is an easy sale because it is simple, it is appropriate for a wide range of markets, and people should embrace the concept because of their concern over contracting a major illness.

If that is so, why have CI sales in the United States been slow and not expanding as quickly as some have predicted? Two new reports from LIMRA International suggest the U.S. may not quite be ready for a CI sales explosion.

The readiness of U.S. consumers to purchase CI insurance may be a function of the current economic and social environment. In comparison to conditions in the United Kingdom and Canada, nothing is happening here to drive consumers to the product.

In the U.K., CI insurance sales soared in the 1990s. Their success was a result of cutbacks in government programs that had formerly provided mortgage assistance to consumers. In order to qualify, consumers now have to be unemployed for longer periods of time and they also now receive lower subsidies. The mortgage-related CI product, which pays out directly to a consumers mortgage holder in the event of critical illness, has met the needs of consumers facing economic uncertainty and given them protection for their most important asset.

Likewise, sales of CI products in Canada have been attributed, in part, to the state of their universal public health care system. Long waits for tests and care have given reason to buy CI products. In fact, some companies specifically promote the ability to take the lump-sum benefit payout and seek treatment and care outside of Canada.

Unlike their Canadian and U.K. counterparts, U.S. consumers have no such compelling reasons to consider buying CI products. Even the tragedy of September 11 will not affect CI sales–because consumers distinguish between getting hurt (as in an attack) and getting sick. They have not yet identified a strong need for the product.

Distribution channels for CI products might also be influencing sales performance. Both Canada and the U.K. rely primarily on the personal agent to sell individual CI insurance. The U.S., on the other hand, has been focusing more on group insurance sales as a preferred channel.

According to a recent LIMRA company practice survey, participation rates for some companies selling a group CI product are typically under 30%. Companies have also reported that low producer awareness and low expertise with CI are some of their greatest challenges in CI marketing (see chart). At the time of the survey, about 30 U.S. companies were identified as selling a CI product.

Lets not forget the consumer in this equation. Despite its supposed simplicity, CI insurance might well be different enough from indemnity type products that consumers need more detailed explanations to understand fully the concept of lump-sum payment upon diagnosis.

There might also be some skepticism from consumers about a product that offers a benefit that can be used for any purpose, including those not medically related. In the company survey, most organizations reported lack of product awareness among consumers as a marketing challenge. It appears as if theres a product to sell but a market thats not ready to buy it.

Thus, the rapid growth seen in other countries may not be replicated in the U.S. Any number of factors may explain the lackluster performance, as compared to other countries. But this market lull offers time to understand better the rapid growth in other countries, to allow the industry to capitalize on them at the appropriate time–and be ready when consumers are ready.

How will companies and producers know when consumers are ready? Ask them.

Despite the apparent insight into what consumers want, very little consumer research actually exists that effectively examines the perceived need of CI insurance in various markets.

Accessible studies are limited either in the number of participants, or in the characteristics of the sample itself. Even the low number of studies limits how far results can be generalized to the rest of the population. Continued research into consumer awareness and perceptions of CI insurance will help guide further development of product types and may help determine if group worksite marketing is, in fact, the most effective channel for the U.S.

Another course of action is do a better job of determining appropriate needs and coverage. CI proponents describe a need in just about every possible market. At the same time, professional recommendations for appropriate coverage amounts vary widely.

Whats needed is a model that better identifies need and determines appropriate amounts of coverage. This will increase producer credibility and address concerns about suitability. Also, marketers need to know what will drive consumers to CI products, and be ready to deliver the desired features. Its not enough to say, “if we build it, they will come.”

, Ph.D., is an associate scientist with LIMRA International, Windsor, Conn. E-mail at pjacques@limra.com.


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.