Stand-alone, acceleration and riders are the 3 critical illness insurance designs that prevail in the United States market. Here is a recap, and also a look at what lies ahead for this emerging and varied product line.
Stand-alone CI, followed by accelerated CI in a life insurance policy, are the 2 main CIs offered by the majority of carriers. Acceleration CIs pay either 100% or a lesser percentage of the face amount. The CI riders, meanwhile, may be added to life, disability, and mini-medical policies.
The major CI distribution channels continue to be in the worksite, followed by individual and group sales. In 2007, for instance, over 80% of CI sales involved worksite products. The U.S. is the only country that dominates the market for worksite CI sales.
Life-threatening cancer, heart and stroke are still the 3 major conditions covered by most CI contracts. A variety of CI products also cover some or all of the following conditions: kidney failure, organ transplant and partial payments for cancer in situ, angioplasty, advanced Alzheimer’s and loss of independent living (triggered by 2 of 6 activities of daily living).
New CI product generations include features for multiple payouts for an additional occurrence, recurrence or have grouped conditions into categories, i.e., cancer, heart disease and other conditions to allow for multiple payout scenarios.
A catalyst for CI worksite sales may be the high cost of healthcare coverage as evidenced by growing interest in health savings account programs and high-deductible health plans. CI is also sold as gap protection for individual disability, with CI amounts ranging from $50,000 to $500,000; here, the CI serves as additional coverage to the disability insurance and/or as liquidity protection for catastrophic medical events.
As the CI market continues to evolve in the U.S., several major issues will need to be addressed. These include:
CI pricing: Current worksite CI products are lapse-supported. A 2007 survey by General Re and National Association for Critical Illness Insurance reported that first-year lapse rates averaged more than 20% for individual and worksite products; in year 2, these rates dropped to 15%, and in years 3-5, the average was over 10%.
These high lapse rates indicate that worksite products may not be priced for persistency and portability. Although worksite CI carriers may offer portability options, consumers typically do not opt to retain these policies when leaving the job or retiring. If future worksite CI products are designed for portability and consumer retention, this may impact future actuarial pricing assumptions for carriers.
Condition definitions: Among U.S. carriers, there are no standard definitions of CI conditions. It is critical that the CI insurance industry agree on such definitions, especially for the big 3 (heart attack, stroke and cancer). This will help ensure uniformity in CI policies, thus lessening buyer confusion, potential claim litigation and possibilities for negative publicity about CI insurance.
Low sales: CI sales continue to grow slowly in all distribution channels. According to the Gen Re/NACII 2007 Market Survey, new business premium totaled $47 million in 2007, compared to $46 million in 2006. Total in-force premium for 2007 was $153 million compared to $127 million in 2006.
Even though the U.S. market has adequate CI products from over 40 carriers, CI sales growth continues as an issue. Here are some suggestions to turn this around:
o More emphasis on producer education may enhance future sales. NACII and CI carriers will need to focus on CI education, as well as exhibiting how CI can be integrated into healthcare solutions and financial planning.
o Given that today’s consumers are more concerned about living longer, CI can be marketed as a gap protection product for health and disability, as well as a complement to long term care insurance.
New generations of CI product designs may include:
Inflation protection: Currently, this is not a pressing issue due to high lapse rates. However, for consumers wanting a product they can retain for both pre- and post-retirement years, including an inflation option will become essential.
Product integration with LTC insurance: Since more consumers are purchasing LTC insurance during their working years, the industry can market both CI and LTC for asset protection. The possibility exists for CI sales to compete with LTC sales. However, a possible solution would be to integrate CI and LTC into one product, giving protection to the consumer for both the pre- and post-retirement years.
CI has the potential to be positioned as an integral living benefit product, since its mission is to provide consumers with financial peace of mind for medical calamities.