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January 19, 2009 at 07:00 PM
Although the United States is definitely in recession this year, the environment created by the meltdown of 2008 could be a catalyst for growth in the critical illness insurance business.
CI insurance pays a lump sum upon diagnosis of a critical illness condition. The big 3–life-threatening cancer, heart, and stroke–comprise 75%-80% of conditions diagnosed each year. Most CI products also pay upon other diagnoses (e.g., for renal failure, organ transplant, and paralysis as well as partial benefits for non-invasive cancer, angioplasty, and coronary artery bypass).
The product has been sold in the U.S. for over 10 years, much of it at the worksite, followed by individual and group markets. The demographic sweet spot for sales has been ages 30-50. Given that, CI insurance could be considered an asset protection product for working individuals.
People usually purchase CI because they know of a family member, friend, or colleague who may have been diagnosed with a life-threatening condition. Statistics are also motivating factor for buyers, since 60% of the people diagnosed with cancer will survive at least 5 years; 75% diagnosed with heart attack and 70% with stroke will survive at least 3 years.
Two of the most powerful drivers for CI sales in 2009 will be rising healthcare costs and liquidity protection.
Concerning healthcare costs, employers and individuals are opting for health plans with high-deductibles, mini-meds, or health savings accounts. This is a direct response to the escalating costs of those plans.
Before last year’s economic meltdown, industry reports indicated that over half the foreclosures and bankruptcies in the U.S. were due to medical costs, even though over 50% of these people were covered by health insurance. No doubt, when the 2008 figures are in, the health cost-related foreclosure statistics will increase dramatically due to the economy, layoffs, and health insurance terminations.
Concerning liquidity protection, many Americans may have encountered substantial losses in housing value, retirement accounts, and probably even cash reserves due to the financial crisis. The natural question is what happens if one is diagnosed with cancer, heart or stroke in this environment? Even with medical insurance, the many indirect costs incurred during recovery could be devastating. Tapping into a depleted retirement account or home equity line at this time would only tighten the squeeze.
