Consumers Want CI Offered In Hybrid Policies

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We’ve heard or read how critical illness insurance sales continue to grow and are poised to explode. But what will tip us into that realm of explosive growth?

Some observers point to the worksite as the best channel to increase penetration, especially to middle market consumers who would benefit the most from this coverage.

Another avenue to consider is product design, according to recent findings from consumer focus groups conducted by LIMRA International, which reveal that consumers would seriously consider a product incorporating benefits of several types of insurance including life, disability income and long term care.

Consumers do recognize the need for coverage like CI insurance, but they must balance it with the need for other products. Many can think of a relative or friend who suffered a serious illness and subsequently incurred hefty out-of-pocket costs. They also understand the importance of DI insurance, and more are thinking about LTC insurance due to both personal experience and information in the popular press.

Yet, debt reduction is one of middle America’s top financial concerns, according to LIMRA research. This makes it difficult for consumers to afford all the types of coverage they need.

Here is the quandary: The industry is asking people to spend what little disposable income they have on an increasing number of products, each touted as being crucial to their financial security. They must make choices.

The industry can make those choices easier by offering hybrid or conversion products that provide multiple coverages for a lower premium than buying each product separately. In fact, focus group participants themselves suggested such an approach, indicating they recognize the need for different coverages but can’t afford them all.

Consumers proposed a hybrid model that would include some DI, some LTC and some CI coverage.

The proportion of each type of coverage would depend on the policyholder’s personal preferences, often dictated by one’s age or life stage. Younger consumers would see greater benefit in having a larger DI component, while older consumers (age 45 and up) are more interested in the LTC and CI components. While each type of coverage is distinctive, consumers felt the 3 were closely related. Someone with a hybrid product could benefit from at least 2 of the 3 coverages after suffering an illness or injury.

Consumers recognize their financial risks change over their lifetime. The notion of a conversion product acknowledges these shifting risks. Thus, instead of covering different types of risk simultaneously, the conversion product changes, for example, from a DI product to an LTC product as the policyholder ages.

A perceived benefit of conversion is that consumers would not be faced with buying a new policy when they are older and premiums are higher. The premium would, instead, be spread out over the life of the policy.

Some participants also suggested offering umbrella policies for health coverage similar to what is offered for personal liability. Unfortunately, none were able to articulate the product design in more detail, but the suggestion might drive new ideas among product developers.

Consumers had mixed reactions to combining CI and life insurance products, more specifically, including CI coverage as a rider to a life insurance policy. Some preferred having the rider because both types of coverage would be available for a lower premium than if the 2 policies were purchased separately. Those who resisted the idea of a CI rider did not like the thought of losing some of their life benefit should they suffer a critical illness. So, for the middle market, both types of products will have an audience.

Several key issues must be considered, then, in strategizing actions to increase CI sales. First, recognize that consumers have limited budgets with which to buy the multiple products the industry is telling them they must have. Second, acknowledge that consumers understand the need for the varying products but are worried about being over-insured and insurance-poor. Finally, consider designing a product that will help people meet their multiple goals of financial security within their budget.

, Ph.D., is an associate scientist at LIMRA International, Windsor, Conn., and a lead researcher on the middle market. His e-mail is pjacques@limra.com.


Reproduced from National Underwriter Edition, August 19, 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.