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CII: Ready to Grow?

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Critical illness insurance (CII) has significant prospects for growth, says Jesse Slome, executive director of the American Association for Critical Illness Insurance (AACIII), Westlake Village, Calif.

He estimates today only about 900,000 individuals have such protection.

CII pays a lump-sum benefit generally upon diagnosis of a covered serious illness such as cancer, heart attack or stroke.

“Most people are completely unaware of how vitally important critical illness insurance can be to their family,” says Slome. “The same can be said for the majority of U.S. insurance professionals, who lack an understanding of this relatively new form of financial protection.”

AACII found voluntary worksite sales makes up 65% of new business premium for CII, followed by true group (23%) and individual (14%).

Slome believes CII has far more income potential for brokers and agents than does long term care (LTC) insurance.

Whereas he estimates the market for LTC insurance is no more than 15 million to 18 million policies, CII has a far wider appeal.

A recent study by AACIII reports 54% of men and 51% of women purchasing individual CII policies last year were younger than age 45.

The 45-54 age group was the biggest segment of the market, accounting for 27% of CII sales to men and 29% to women.

Women tended to buy CI protection at slightly older ages: 22% of female buyers were 55 or older, compared to 18% of males in that age group.

The study found 25% of male and 23% of female buyers were in the 35-44 age group, while 21% of male and 19% of female buyers were between the ages of 25 and 34. Just 8% of male and 7% of female buyers were under 25.

AACIII analyzed data for over 20,500 buyers of individual CII in 2010.

Most of the sales were for relatively low face amounts, AACIII found. Among individual policies sold, 71% of males and 75% of females bought face values of $30,000 or less.

“Lower-priced policies, especially for the younger employee, can help fill the financial need without a large outflow of money each month,” observes Clea Barth, vice president for health risk products for MetLife Inc., New York. “It’s a lower-cost way to pay those out-of-pocket expenses that may remain despite having health insurance and disability income protection.”

A recent MetLife study found that among those who had suffered a critical illness, deductibles, copays, and other out-of-pocket costs can add up to over $6,500.

“A policy with a benefit of $10,000 to $20,000 can make a difference in the financial health of a family,” Barth says.

While MetLife sells CII mostly as a voluntary group benefit, usually 100% employee-paid, it recently brought out an employer-paid group version. Offered as guaranteed or simplified issue, it is aimed at employers moving employees into high-deductible health care plans.

Some employers have seen participation in such plans double when CII is offered as an employer-paid benefit, Barth says.

Chris Haire, product performance director for Mutual of Omaha, says that his company has seen double-digit annual growth for CII in recent years.

“We plan to capitalize on that momentum,” Haire says.

Most of its CII sales are individual products, but Mutual recently released a policy designed for the worksite.

The company focuses on sales of policies with a minimum $50,000 in face value. Over half of the individual CI policies it sells are valued at $100,000 and up, says Haire.

He believes health care reform could create new opportunities for CI products.

“We’ve heard that producers selling major medical are concerned their compensation could be affected by health care reform and are looking to diversify,” he says. “CII is a natural extension for them.”

CII can also be sold as a supplement to disability insurance, he says.

“If you are disabled, your needs easily can go up over 100% of income,” Haire says.

Advances in medical care are another reason consumers are becoming more attracted to the product, Haire says. As the chances of surviving serious illnesses increase, CII is “something people really appreciate,” he says.