Look To CI Acceleration Riders As Trigger For Greater CI Sales

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Critical illness products have grown slowly in the United States. This is despite the fact that a good deal of press about CI products has been coming out in trade publications such as National Underwriter.

By contrast, in Canada, indications are that sales nearly tripled from 2000 to 2002.

What can be done to give CI sales in the United States a similar boost? It is said that timing is everything, so perhaps the moment for CI insurance to take center stage has not yet arrived. But several indications suggest the curtain may be about to rise.

Let us acknowledge that there are certain differences in the health care systems of the United States and Canada that would help explain the difference in popularity of CI coverage.

In Canada, the government provides health care and there have been terrible delays in obtaining treatment. Canadians can use the proceeds of a CI policy to pay for private doctors. In some cases, Canadians seek treatment in the United States. Travel costs can be offset by the policy proceeds. Since Canadians do not pay health insurance premiums directly, they may be willing to incur the additional expense.

In the United States, however, most health insurance is employer-based. In many cases, employees are now paying a portion of the insurance costs–not always a welcome change.

Furthermore, the cost of health care insurance keeps going up. This, too, is not a welcome change.

Where critical illnesses are concerned, U.S. citizens expect their health insurance to cover all of the costs of such illnesses. This is so, even though most people here are aware that the ancillary costs still must be addressed.

People here do recognize that, in many instances, the quality of care paid for by medical insurance may not even begin to compare to what is available at major medical centers throughout the country. In life and death circumstances, many of these individuals want access to the admittedly more expensive higher level of care, and they hope they can find some way to make that possible.

In the United States, therefore, consumer views of health insurance reflect a combination of expectations, concerns, frustrations and hopes.

Now, let us turn to considering CI insurance as a solution. We already have noted that sales here are still slow. One approach that has been used to make CI policies more attractive is to add to the list of illnesses covered.

The large majority of contracts pay a lump sum in the event of a heart attack, cancer and stroke. By adding additional conditions–such as renal failure and loss of limbs—developers can make the product more appealing without exposing the insurance company to a significant amount of extra risk.

But if the CI product is positioned as health insurance, it may well be that purchaser resistance to CI insurance in the United States will continue. This is because consumers may attribute to CI many of the same expectations, concerns, frustrations and hopes they currently have toward medical insurance, as noted above.

In the United States, stand-alone CI policies likely will be the object of this resistance. This is because the stand-alone CI policy is often viewed as another form of health insurance coverage.

But CI coverage that is offered via an acceleration rider on life insurance policies is another story. In the United States, life insurance is sold as part of the financial planning process, and a CI acceleration rider to the life policy may therefore have a greater appeal.

In Britain, such acceleration riders already are important products. They are most popular as a means of paying off a mortgage. When an insured is faced with surviving a critical illness, elimination of the monthly mortgage payment can remove an enormous financial burden.

Payment from the life insurance policy can also be used to cover travel expenses to a treatment center or to have the immediate family fly in and assist in the convalescence. Of course, the ultimate payment upon death will be reduced, but this aspect helps to make the CI acceleration rider affordable.

The trend to keep in mind is that critical illness is, in many cases, no longer a career- or life-ending event. But such an illness can have a significant financial impact on an insureds finances, especially in a society such as the United States, where personal debt is at very high levels.

In view of that, offering CI acceleration riders as an extra feature of a lifetime financial plan may be the best opportunity to boost CI insurance sales.

The availability of such coverage, in which the buyer no longer has to face a use it or lose it situation, should make the rider sale far more attractive than the sale of stand-alone CI.

Another strategy would be to offer a modified CI rider that reduces the underlying life coverage by less than the amount of the CI benefit payment.

The advantage of this arrangement is that it provides a reduced cost while addressing the flipside of the acceleration rider advantage. (This flipside is that that the client may resist the idea of losing the death benefit protection when the CI benefit is paid.)

It may turn out that sales of the CI acceleration riders may lead to an increased awareness of critical illness, in general. This may, in turn, boost sales of the stand-alone CI policies, which is what many carriers have been seeking to do.

Cary Lakenbach, FSA, MAAA, CLU, is president of Actuarial Strategies Inc., Bloomfield, Conn. E-mail him at caryl@actstrat.com.


Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 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.