The U.S. critical illness marketplace continued to grow at a modest rate through 2004, the year for most recent data. This article reviews the data and examines what is needed to move to the next level.
Estimated CI in-force premium increased 4.2% from 2003 to more than $128 million, according to the National Association for Critical Illness Insurance’s Benchmark Study for 2004.
Annualized new sales increased 6.5% to over $61 million, according to the study. Covered lives rose 13% to more than 400,000 lives. (See Table 1).
These results reflect insurance company sales of CI products designed as stand-alone, acceleration, or rider and covering at least the three major CI conditions (life-threatening cancer, heart attack and stroke).
Note: AFLAC participated in the NACII survey; however, its product represented a specified disease policy with a limited CI benefit, so the data was separated out. If AFLAC’s product were included in the industry totals, CI in-force premium would increase to over $233 million, annualized new sales to over $100 million and covered lives to over 775,000.
Growth in the worksite and individual channels has doubled since 2002, according to data on the CI marketplace by distribution channel from US Living Benefits. (See Table 2.)
However, growth in the employee benefit channel has slowed in comparison. This particular channel may be the “sleeping giant,” since several carriers are introducing group CI to very large groups, on either a contributory or a noncontributory basis.
By product type, the three major designs are stand-alone, acceleration and rider. A stand-alone CI insurance product is built on a health insurance chassis. This is the predominant design utilized for three major distribution channels. Policy limits can range from $50,000 to $1 million, depending on type of underwriting used. The average-size policy sold is under $50,000.
The accelerated product can be described as CI insurance with a death benefit feature. Usually these products are designed with an acceleration component that ranges from 25% to 100% payout for CI. Example: If a $50,000 life policy has 100% acceleration for CI, and if the insured is diagnosed with a CI condition, the policy would pay out the entire $50,000, leaving no death benefit for heirs. On the other hand, if the insured never uses the CI feature, the policy would pay the full face amount upon death.
The CI rider products may be added to a life, disability or health chassis. The rider would pay in addition to the core product. For example, some carriers offer a CI component on a life insurance policy so that the death benefit stays intact.
Several trends in the market are appearing in US Living Benefits data. These include:
o Group capacity: This has been increasing from $50,000 to $100,000.
o Individual capacity: This has been increasing to $500,000 or more. Carriers are beginning to target business owners and higher paid workers.
o CI buckets: Some carriers are categorizing CI conditions into buckets. The product is designed to pay out for more than one critical illness, if the subsequent critical illness falls into a bucket of CI conditions which has not yet been used. For example, a $50,000 CI policy with CI conditions categorized into three buckets would have the potential of a $150,000 payout.
o Recurrence: Carriers also are offering a payout for an additional occurrence for the same CI condition. For example, if a policyholder has a heart attack, the policy would pay out upon the initial diagnosis. If the policyholder subsequently has another heart attack (usually after a specified period of time), the policy would, once again, pay a benefit.