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CI Issues Under The Microscope

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Braselton, Ga.

“It took a while to get producers interested in selling critical illness insurance,” said David J. Pavletich here at the first annual meeting of the National Association of Critical Illness Insurance, Washington, D.C.

Pavletich is president and CEO of Colorado Bankers Life Insurance Company, a Greenwood Village, Colo., insurer that has issued over 48,000 CI policiesover 26,000 in the worksite and nearly 22,000 through brokered sales and other channels. The company entered the CI market in July 1998 but didnt see strong growth until more recent years.

Pavletich was among several speakers at NACII to address issues related to developing CI insurance as a product line.

This is an evolving product right now, and the industry is “going through the growing pains,” noted Bob Greving, executive vice president and chief financial officer of UNUMProvident Corporation, Chattanooga, Tenn. He urged the industry to deal with various issues cropping up as the line develops.

For example, CI insurance still has the stigma attached to it of being cancer insurance, he said. Therefore, the industry needs “to make sure we take a high marketing position and maintain integrity in how we promote the product.”

One way to do that is to present the product as a means of providing financial support to clients, not financial reward and speculation, Greving said. That is especially important at higher face amounts, he indicated.

(Note: Most CI executives at the meeting said they are targeting most sales at the $5,000 to $50,000 face amount range. Larger sales do occur, but they are not typical.)

Another concern: “I am hearing that the duration from time of issue to claim is relatively short,” said Greving. This raises the possibility that some carriers might be open to anti-selection, he indicated. “This has to stop if the product is to develop.”

The definitions of covered illnesses that appear in the products also need work, he said. They need to be clear, he said, “so that what the consumer expects and what the consumer gets are consistent.”

Even the definition of “heart attack” is not standardized, agreed Daniel Pisetsky, managing director of US Living Benefits, LLC, Manchester, Conn. “We need to get this (approach to definitions) right, so we can be sure consumers are getting what they are supposed to get.”

The definitions must be such that they cover what the pricing is meant to cover, stressed Jeanie Perruzza, reinsurance director-underwriting for Sun Life Reinsurance, Toronto. The criteria required to meet the definitions should be clear, too, she added.

The industry also needs clarity on taxation of the premiums and policy benefits, said Pisetsky.

(Note: Several sections of the tax code may provide guidance, pointed out Pamela Tait, vice president-actuarial services, Disability Consulting Group, Portland, Maine, in a panel on tax issues. But gray areas exist, she added, noting companies are seeking out Private Letter Rulings and Technical Advice Memos.)

Another issue is finding ways to offer the coverage without inviting anti-selection, said Pisetsky. (Producers often seek products that allow guaranteed issue or simplified issue on base policies offered at the worksite plus underwriting on the buy-ups, but only some carriers currently do this.)

In terms of markets, “why arent we selling CI insurance to younger people, say 30-55, and then selling LTC to the older ages or a CI product that converts to LTC?” asked Pisetsky. Both products offer asset protection, he pointed out, and they would seem to fit together.

Over-expanding the number of conditions covered in CI policies is another area to watch, said Greving, the UNUMProvident executive. Carriers are trying to differentiate themselves, he allowed, but the proliferation of covered diseases can become too “exotic,” he said.

The industry should not get into a bidding war on the covered diseases, he said. If the coverage does not serve a purpose, its presence in a policy suggests speculation. “We should not do this. It can kill the product.”

Bonnie Brazzell, vice president in Eastbridge Consulting Groups Columbia, S.C., office, agreed with Pavletich that slow growth is a key factor that insurers and producers must contend with in CI sales.

The slow start to sales “is not because producers have rejected the product,” Brazzell said, “but because producers need to know more about it.” They need to understand how the CI policy works, how it enhances the portfolio and how it can be used as a cross-selling tool, she said.

Some agents are not yet sure the product will be profitable for them and worth their while, Brazzell allowed, and others are concerned about pricing. Some are concerned they may need to ask the client more questions than they ask when selling other products such as term life.

Therefore, “dont neglect the marketing and training aspect to this product,” she advised.

On the plus side, she said, “when people hear about the coverage, they do grasp it.”

The CI product has to be understood by the buyer, have a reasonable price and be sold to people who need it, maintained Gordon Gladstone, president of Critical Illness Insurance Services Inc., Tarzana, Calif. The integrity of the company behind it is important, too, he said.

If those things exist, marketers should have a huge revenue source, he said. In fact, “for a revenue source, its the mother lode. If you dont understand that, youre in the wrong business.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 10, 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.