Not all productsor product featureshave staying power. Consider the Edsel automobile, the black and white television or the eight-track tape player.
The insurance industry also has introduced products and policy riders that were promising at first but have had to change from their original intent to remain marketable.
Fifty years ago, disability benefits were paid as part of a life policycalled a permanent and total disability (PTD) benefit. Some of these policies still exist but are basically holdovers. New buyers are finding long term disability income protection insurance a more effective solution.
One of the most recent emerging products is critical illness insurance. Will this be a sustainable product?
Right now, CI insurance is evolving. The insurance industry is looking at ways to maintain and grow it as a viable product in the marketplace. But to ensure it is sustainable, the industry needs to examine how it treats this product. The industry also needs to look at those things that might put further market development of CI insurance in danger.
One issue that must be overcome is the stigma of CI insurance being known as “cancer insurance.” Such references limit the products potential. CI insurance covers a wide range of illnesses that are prevalent in the population. These may include heart attack, carcinoma, coronary bypass surgery, stroke and major organ transplants. Some policies may include cancer coverage in a separate rider.
Hence, the proper approach is to market and promote the product with accurate representations of all its benefits.
The industry also needs to examine the products potential for success. In general terms, there are 3 criteria that must be met for an insurance product to be successful and persist in the marketplace. The product must be something customers need, it should serve a social need and it must be reasonably priced.
Statistics clearly demonstrate the need for CI insurance. The American Heart Association, in its 2003 Update, reported that approximately 650,000 Americans would have a new coronary attack and about 450,000 would have a recurrent attack in 2003. It also said that every 45 seconds, an American suffers a stroke.
Thanks to medical advances, the chances of surviving such illnesses are high. But survival sometimes comes at a significant financial cost. Common expenses include private nursing care; medical treatment outside the medical network; insurance and prescription co-payments and deductibles; rehabilitation; and childcare during a parents treatment or hospitalization. These costs can take a toll on families already dealing with the illness.
The second point to consider is whether the product serves a social need. The CI product gives customers added financial protection, much like life insurance. But the CI benefit is one that customers can use during their lifetime.
A stroke victim may have income protection insurance to protect earnings and medical insurance to cover most of the medical-related costs of illness. However, if home or automotive modifications are required, CI insurance can help cover these costs.
Product pricing is the third ingredient to success. The purpose of CI insurance is to help offset the nonmedical expenses incurred from the illness. The product should be structured so it helps provide financial support for the customer, not financial reward. The product should never be seen as a means of “hitting the jackpot” when illness strikes.
This is particularly important when selling policies with higher face amounts. It is also important to keep policy limits within the policyholders needs and budget.
Another concern is that the time between the issue date of a policy and the reporting of a claim has been relatively short with this product for illnesses reported to date.
This may indicate some anti-selection is occurring for some carriers. Requests for no waiting periods and for guaranteed issue help foster anti-selection.
As for policy language, the industry should develop definitions of covered illnesses that are clear, concise, consistent between products, and easy for the consumer to understand. Definitions should be structured so that they cover what the pricing of the product is meant to cover.
Developers need to make sure that definitions are consistent throughout the industry–and dynamic enough to allow for medical advancements and potential regulatory changes.
Another area to watch is the expansion of covered illnesses. The industry should resist competing on the basis of the number of illnesses a CI product covers. In order to keep the product reasonably priced and to make sure it serves a purpose for the consumer, the covered illnesses should have high incidence rates within the population and typically result in significant nonmedical financial costs.
Critical illness insurance is still a developing product. To ensure its growth and long-term availability for customers, the industry needs to remember its original intent: to help insureds overcome the financial strain that a critical illness can cause and focus on getting well.
Robert C. Greving is executive vice president and chief financial officer of UnumProvident Corporation, Chattanooga,Tenn.
Reproduced from National Underwriter Edition, January 16, 2004. Copyright 2004 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.