The status of the market in mid-2005 is positive

During the 2004-2005 period, the health care situation in the United States continued to demonstrate the pressing need for critical illness insurance as a consumer choice for paying expenses not covered by high-deductible medical plans.

The rise of consumer-driven health care and of health savings accounts reinforced this, by fostering an environment in which making appropriate health care decisions is increasingly the consumer’s responsibility.

So did the spreading recognition that medical and non-medical expenses related to catastrophic illness ultimately can lead to bankruptcy. (Some people still think they have good health insurance that will cover all their medical costs, of course. However, media reports have been coming out on how many uncovered expenses remain–e.g., hospital and medical deductibles, prescriptions, job loss and maximum-benefit caps–and how these expenses can run into the thousands of dollars, putting families into financial jeopardy.)

These and related trends are favorable to CI insurance, which consumers can use to fill the unmet needs. This has not been lost on larger carriers. For instance, in 2005, MetLife entered the individual and group CI insurance market. That is significant, I believe, because having a carrier of that magnitude in the market adds to the product’s visibility and credibility.

So, the status of the CI insurance market in mid-2005 is positive: The coverage has achieved legitimacy. Here are some details:

Company Overview. Table 1 shows there has been modest growth in the number of companies entering the CI market, compared to 2004. However, our research indicates that several carriers, ranging from individual to group, are considering including CI insurance in their product portfolios in the near future.

Although only 9 companies are currently in the employee benefits channel, this channel could prove to be the catalyst for widespread consumer awareness about CI insurance. This is because companies are committing major resources to addressing employee benefits, either through guaranteed issue or voluntary CI insurance programs. Some carriers are focusing on the mid-size, while others are targeting the large and even jumbo employers. This is due to the interest these markets have expressed in CI–especially in how CI can complement high-deductible health care plans.

Table 2 shows that stand-alone CI insurance products are currently the predominant product design. These designs are appropriate for products offered in both the employee benefits channel as well as for the worksite and for individuals.

An offshoot of the stand-alone product is the CI rider. Some insurers are offering this rider on a group disability chassis.

The accelerated product is usually CI coverage built onto a life insurance chassis. Should the client purchase a $100,000 life policy with CI rider and then be diagnosed with a critical illness, the life policy will pay $100,000 in CI benefits. If there is no such diagnosis during a policyholder’s lifetime, the $100,000 is payable on death.

Features. Some predominant features in current product designs are:

First occurrence: A lump-sum payment upon the first diagnosis of a covered condition.

Recurrence: If the insured receives benefits for a covered CI condition but subsequently has a recurrence, the CI benefits will be paid again.

Additional occurrence: An additional benefit for a covered CI condition for which benefits have not been paid previously.

Spouse and child coverage: An available option, particularly in the group and worksite channels, in recognition of the fact that individual workers are as concerned about their families as about themselves.

Covered conditions: Some carriers are dropping multiple sclerosis and Alzheimer’s as covered conditions. Both are difficult conditions to diagnose, as well as define, and may ultimately affect claims.

Wellness benefit: A proactive and preventive approach for health screening. The amount allowed for this benefit varies but is generally $50-$75 per calendar year.

Return of premium: A relatively new feature offered in some products, whereby an individual who does not use his/her coverage will get back a percentage of premiums paid in. This option is usually reflected in higher premium rates.

Underwriting issues. Some insurers are using guaranteed issue in the employee benefits arena with more stringent guidelines for pre-existing conditions and coverage amounts.

Note: Tremendous potential exists for anti-selection with CI products. Worksite and individual channels are using simplified and modified underwriting. But for coverage amounts of $100,000 or more, companies are using more detailed underwriting, and using paramedic exams and physicals as prerequisites.

Claims. Since CI is a relatively new product, carriers still lack a large body of claims data to reference. Certain carriers have indicated that there has been an increase in MS and Alzheimer’s claims and an unexpected increase in cancer claims for individuals under the age 40.

Definitions. In the U.S., the CI industry still does not have a standardization of definitions. However, insurers are incorporating the Joint Committee on Cancer’s guidelines into their cancer definitions.

Taxation. This area presents one of the biggest hurdles for the CI industry to overcome. Currently, there are no definitive Internal Revenue Service regulations with respect to CI benefits. Most companies refer individuals to their personal tax advisors for assistance.

It should be noted that, with the advent of Health Savings Accounts, qualified long term care insurance is receiving a tax benefit in that consumers can use their HSA money to pay for LTC premiums. In my opinion, the CI industry needs to lobby Congress for federal legislation to do the same for CI insurance. Through the efforts of the National Association for Critical Illness Insurance, perhaps the day will come for “qualified” CI insurance for core conditions such as heart, stroke and life-threatening cancer.

Other issues. Given that more than 40 major companies now are operating in the CI arena with more to come, the next major issue for CI success is market position, as well as execution. Already, most CI carriers are questioning the best way to position CI. That is, should it be sold in conjunction with health care, financial planning, as an adjunct to disability insurance, or possibly a part of corporate-owned life insurance?

Significant here is that CI insurance does not depend on a single socio-economic status. That is, the industry can design and target products for the affluent, as well as the blue-collar population.

Broker training is extremely important in the marketing of this product. It is essential that brokers become comfortable, confident and knowledgeable in all aspects of CI and position it properly in their product portfolio. A health care broker could target a stand-alone CI product as a health care solution, whereas, a life insurance agent or financial planner may utilize an acceleration CI product (CI with a death benefit) to meet the client’s need.

As CI products continue to evolve, it is important to remember that CI was founded to provide financial support for calamitous medical events, not as a panacea for health care. It is imperative for the insurance community to adhere to the intended, core fundamentals of this product.

Daniel R. Pisetsky is managing director of US Living Benefits, Old Lyme, Conn., and founder of National Association for Critical Illness Insurance, Washington, D.C. His e-mail address is: uslb@uslivingbenefits.com.

Several carriers are considering including CI insurance in their product portfolios in the near future