Critical illness insurance issuers are opening their arms to you.
The question is: How do you hug back without knocking them over?
A critical illness insurance policy pays a lump sum to an insured who suffers a covered health problem.
The first modern critical illness insurance policy appeared in South Africa in 1983. Jackson National Life Insurance Company brought the concept to the United States, in the form of an accelerated life insurance benefit, in 1989.
Sales grew so slowly that, as late as 2003, the Society of Actuaries ran a newsletter article with the headline, “What is critical illness insurance?”
Today, insurers see offering critical illness insurance as a way to help consumers with growing holes in major medical coverage, in the individual market, the group market and the voluntary benefits market. Fully insured workers face an average of $7,500 in out-of-pocket costs after surviving a critical illness, and many survivors of serious illness face costs related to their inability to work, even if they have disability insurance, according to Wellesley Hills, Massachusetts-based Sun Life Financial U.S.
Critical illness insurance falls outside the scope of Affordable Care Act mandates. So issuers can set benefits caps as low as they like and use medical underwriting.
Mutual of Omaha Insurance Company, for example, has one band of risk classes, for people who get $10,000 to $99,000 in individual critical illness insurance coverage through a simplified underwriting process, and a second band for people who get $100,000 to $250,000 in critical illness insurance coverage. People in the second band have to go through a full medical underwriting process.
Mutual of Omaha will offer applicants with mild asthma standard rates, and it might offer coverage to some older applicants with Type 2 diabetes. It won’t take applicants with Type 1 diabetes or with severe asthma.
Issuers also can design the products to be much less sensitive to low interest rates than typical long-term care insurance policies.
In the individual major medical market, issuers have been doing just about everything short of hitting agents with brooms to keep them away.
In the critical illness insurance market, issuers pay generous commissions.
Issuers pay generous commissions in the critical illness insurance market. (Photo: iStock)
In most states, for example, Guardian Life Insurance Company of New York pays 15 percent on the first $15,000 of group critical illness insurance premiums. For voluntary critical illness insurance, the company pays a first-year commission of 20 percent and a commission of 13 percent for the second and later policy years.
Washington National pays a first-year commission of 40 percent and a second-year commission of 4 percent to sellers of its Washington National Critical Solutions policy.
In the District of Columbia, Guarantee Trust Life Insurance Company of Glenview, Illinois, pays a first-year commission of 60 percent of the first-year premiums and 20 percent of the premiums for the second through fifth years, according to a product filing approved in October.
But the issuers are reaching out to you knowing they need help with attracting the right kind of business.
U.S. sales increased 15 percent between 2013 and 2014, to $380 million, according to a team in the Stamford, Connecticut-based office of Gen Re.
Forty-one insurers were actively selling the product, up from 30 the year before.
More than half of the insurers already in the market said they wanted to focus more on selling critical illness insurance, and none said they wanted to cut critical illness insurance sales.
Stephen Rowley, a vice president at Gen Re, said that growth rate looks “pretty spectacular” when compared with the growth rate for other insurance products he follows.
“Most of the interest remains in the group and worksite areas,” he said. “Though we're seeing an uptick in individual carriers looking to add critical illness to their portfolios.”
One cloud hanging over all that growth is uncertainty about claims.
U.S. issuers have their own proprietary experience critical illness insurance data, but they depend heavily on government data for the general U.S. population when preparing rate filings. (Photo: iStock)
The issuers’ main defense against inaccurate claim forecasts is wiggle room: The expected ratio of claims to premiums is usually 50 percent or 55 percent.
Although the products appear to be much safer to sell than major medical coverage or long-term care insurance, one concern is that insurers are setting prices for the products without having the same kinds of time-tested actuarial tables they use to set prices for life insurance or disability insurance.
U.S. issuers have their own proprietary experience critical illness insurance data, but they depend heavily on government data for the general U.S. population when preparing rate filings.
The Canadian Institute of Actuaries, an Ottawa, Ontario-based group, published one Canadian critical illness insurance morbidity study in 2013, based on 1,823 claims that eight Canadian issuers received from 2002 through 2007. The institute then published a follow-up in October. The second survey was based on 3,393 claims filed with 11 issuers from 2005 through 2014.
The actuaries found that, in Canada, critical illness insurance underwriting helped keep the ratio of actual claims for a condition to the incidence of claims for the condition in the general Canadian population far below 100 percent. But the ratio of actual claims to expected claims was higher than for most of the higher conditions.
The number of claims for Parkinson’s was small, but the average value per claim was so high that “Parkinson’s claims… paid out three times the overall average amount,” the actuaries wrote.
The actuaries said the actual-to-expected ratios could be a sign that people who know they’re likely to have health problems are getting coverage with larger face amounts.
Rowley said he thinks issuers in the U.S. critical illness insurance market have taken a careful approach to pricing.
“Should a carrier come along who is committed to market dominance at all cost, this would certainly be a disrupting factor,” Rowley said. “Fortunately, we've not seen any signs of that.”
But issuers’ efforts to offer guaranteed issue and simplified underwriting programs limit the amount of underwriting information some get.
Kristin Steenson of Omaha, Nebraska-based CSG Actuarial LLC reported in May that 10 percent of CI issuers it surveyed don’t ask whether applicants have HIV, 33 percent don’t ask whether applicants have had leukemia, and 90 percent don’t ask whether applicants have smoked.
At a Critical Illness Insurance Forum held in September in New Orleans, several actuaries wore caps during a session to make the point that they feel as if they’re doing highwire acts.
Rowley says agents and brokers can play an important role in helping insurers manage critical illness insurance claim risk.
“They see the trends, challenges, and problems first hand, and the overwhelming majority want to write business that will continue to produce favorable results for them, the insured, and the carrier for years to come,” Rowley said. “In order for them to do this, our industry needs to step up our game in terms of training and support.”
How do you find critical illness insurance prospects with the right level of risk? (Photo: iStock)
Segmenting the CI market
How do you find critical illness insurance prospects with the right level of risk? Here are seven ideas about how to proceed.
1. Think hard about your goals.
You may want to focus more on serving large numbers of low-risk clients with clean applications that will sail through underwriting.
Or, especially if you have started down the path of charging service fees, you might want to focus on serving higher-risk individual clients with complicated coverage needs and underwriting situations.
2. Minimize the amount of personal health information you collect.
Given how tough the federal government has been about enforcing compliance with health privacy and data security standards, you may want to collect as little protected health information in connection with marketing information as possible, and hold any health information you do need to collect as briefly as possible.
3. Assess how carriers assess claim risk.
If you want to develop, and keep, long-term relationships with clients and insurers, you will want to look for evidence that the insurers you work with take risk management seriously.
How well has the CI issuer managed health-related products such as individual disability insurance or hospital indemnity insurance in the past?
How actively do the CI issuer’s actuaries participate in CI events sponsored by organizations such as the Society of Actuaries?
4. Read the carriers’ underwriting guidelines carefully.
The more you know about the quirks in insurers’ underwriting manuals, the more likely you are to know which applicants may run into obstacles, and the more likely you are to be able to find coverage for hard-to-place clients.
Mutual of Omaha, for example, requires consumers applying for $100,000 or more in critical insurance coverage to go through a full medical underwriting process. Possibly because those applicants get assessed more carefully, they are more likely to be able to get critical illness insurance coverage in spite of having Type 2 diabetes.
5. Steal ideas from the Affordable Care Act public exchange system.
Whether you love the Affordable Care Act or hate "Obamacare," the public exchange system has been managing health risk as well as it can without being able to ask the applicants any questions about their health. Managers of exchanges in states like California and Colorado have posted descriptions of their marketing programs on the web.
6. Sell hard.
The higher sales are, and the more ordinary, healthy people buy critical illness insurance, the less impact applicants with poorly disclosed health problems will have on the risk pool.
7. Peg marketing efforts to turning points in consumers’ lives, rather than to fears.
Consumers who are thinking about buying insurance because they’ve changed jobs or gotten married are apt to be better risks than those who come to you wanting coverage because, deep down, they’re wondering why they’ve been having such a hard time catching their breath lately.
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