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.
CI is the only insurance product that can provide a cash infusion at such a juncture, when the person may need it the most. CI should not be positioned as a replacement for health, disability, or life insurance. It should be presented as gap protection, a product than can complement current healthcare coverage.
During 2009, CI sales will continue to grow in 3 distribution channels:
Worksite. Employers seeking to provide voluntary benefits to offset rising healthcare costs will endorse CI. The average policy is $30,000, and is written using simplified issue underwriting. Most such products are designed to give the employee an opportunity to port the coverage upon leaving the employer.
Group. CI is gaining traction as an employee benefit. The products here are priced with one or two-year rate guarantees and are sold on non-contributory basis, contributory, or both. Guaranteed issue may be offered based on penetration requirements. Amounts are usually $5,000 to $10,000, with no or limited portability. This type of coverage may help to fulfill medical deductible requirements or provide cash for indirect expenses.
Individual. Previously, individual sales have not grown as fast as worksite. Individual CI can range from $10,000 to $500,000, with amounts over $50,000 requiring more detailed underwriting.
This financial environment of 2009 will provide a perfect opportunity for agents, brokers, and financial planners to introduce CI. It represents a financial solution for a catastrophic medical event. As such, it’s a necessary complement to a financial plan, regardless of socio-economic status. It provides liquidity when needed the most.
Daniel R. Pisetsky is president of US Living Benefits, Old Lyme, Conn., and founder of the National Association for Critical Illness Insurance, Lincoln, Neb. His e-mail address is [email protected].