CI Insurance Will See True Market Test
As An Accelerated Life Rider
Touted as a potentially vibrant new product line for the insurance industry, critical illness insurance is getting a market test.
This is happening right alongside the product that has defined relationships between many agents and clients for yearslife insurance.
As an accelerated rider on a life insurance policy, CI insurance adds an important modern benefit to traditional life insurance and to the product portfolio of life agents. Delivering CI insurance through traditional life insurance channels might also be the most effective way to test the products merits in todays marketplace.
The need for CI insurance is quite clear: Due to medical advances, individuals who suffer serious illnesses recover more frequently to return to their work and lives.
In the past, serious illness more often meant death and the payment of life insurance proceeds to survivors. Today, however, people often survive intense periods of illness, potentially followed by a prolonged recovery time. That means people now need “bridge funding” to help cope with the expenses that may not be covered by disability or medical insurancea solid argument for the benefits provided by CI insurance policies.
Given the strong case for CI insurance, what is the best way to bring it to the public?
Life insurers are beginning to test providing CI insurance as a rider that accelerates the death benefit of a life insurance policy. This is, in part, because the rider benefits fit with the issues and concerns that prompt consumers to consider the purchase of life insurance in the first place.
Protecting mortgage obligations, college expenses and retirement funds are common goals of life insurance protection. But since life insurance pays only in the event of death, a gap in insurance coverage exists for individuals who suffer a major illness and survive but are still not ready or able to return to their career and who may experience significant rehabilitation expenses.
A CI insurance rider can provide protection in relation to the same financial objectives, but it extends to a more robust set of risks that threaten those goals.
Cost to consumers has been one of the major roadblocks to marketing stand-alone CI insurance. Many early entries to the CI insurance market have been in the form of moderate policy sizes, $30,000 to $50,000, with limited underwriting. However, when realized as an accelerated rider on a mainstream, fully-underwritten life policy, per-policy expenses shift from high to marginal, and claims costs drop due to the value of underwriting, as well as the efficiencies between the 2 benefit triggers.
The result can be a 30% to 50% reduction in CI premiums relative to a limited underwriting stand-alone policy.
As an accelerated rider, CI insurance may be appealing to insurance companies and producers alike as a new and compelling way to differentiate offerings.
The coverage helps to meet a consumer need in a time when life insurance sales are not increasing. In fact, individual life sales recently have leveled off, from 9.5% growth in 2002, according to the American Council of Life Insurers, to a slight decline in 2003, based on early Life Insurance Marketing Research Association studies.
Initially, multiline insurance companies with captive distribution may offer the best road test of the CI insurance idea.
Such insurers often stake their market positions on providing a portfolio of “total protection” productse.g., a lineup that could welcome a CI product that is valuable for both the insurer and the marketplace.
Adding a CI rider to a life policy could distinguish an insurer from competitors in a way that could lead to complementary sales in other lines, as well as creating a means to differentiate their life products other than by price.
Clearly, for agents and brokers, the accelerated CI rider provides a strong marketing opportunity to tap an unmet need. Experienced life insurance agents will judge whether such a rider brings them an effective means to refresh and expand their sales portfolio.
Once they put it to the test, agents themselves will make the best case for offering the CI benefit. And, the industry will soon know whether agents and customers find a fit for the different but welcome benefits of a CI insurance rider.
, FSA, MAAA, is vice president-product solutions and research for ING Res Individual Life and Health Operation, based in Denver. His e-mail address is Chris.Shanahan@ing-re.com . The views expressed here are the authors.
Reproduced from National Underwriter Edition, June 4, 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.