Why CI? : The Potential of Critical Illness Coverage

By Hank George, CLU, FLMI, FALU
LIMRA’s MarketFacts Quarterly
Summer 2003

I would like to be able to recount to you how a beautiful lady, in a streaming white gown, floated over this underwriter’s bed one evening and said, “build it and they will come” (or something to that effect).

Alas, it was words of inspiration from eminent consulting actuary Jack Bragg in an essay in The National Underwriter (September, 2000) that jumpstarted my awareness of the incredible and — as yet overwhelmingly untapped — potential of critical illness (CI) insurance in our marketplace.

You were so right, Jack, when you opined that CI is “. . .the only coverage that can replace future potential economic assets that have been destroyed by major catastrophic health events while the insured remains alive.”

Why then, three years later, is this unquestionable “fourth leg” (with life, disability, and LTC, that is) of any properly protected policyowner’s portfolio still in relative limbo, offered by a mere handful of enterprising domestic carriers?

The producers say they are waiting for insurers to manufacture CI; the insurers contend they are waiting for the producers to demand CI; and meanwhile we are treated largely to silence while compelling opportunity paradoxically eludes a marketplace so incredibly primed for something new. (Not to mention something more customer-comprehensible than variable universal life or long-term care insurance!)

Critical illness insurance — sometimes referred to as dread disease insurance — is exactly what its name implies: a form of coverage which pays a livingbenefit when the policyholder contracts one of the impairments named in the contract. These conditions typically include heart attack, stroke, invasive (thus, potentially life-threatening) cancer, and so on.

Critical illness owes its roots to the South African insurance industry, where Dr. Marius Barnard created the first versions of what was destined to become a big seller in many of the world’s leading and emerging markets.

It can be shown that CI is a market factor almost everywhere, from South Africa and the United Kingdom, to Australia and, increasingly, Asia Pacific. It has a solid foothold north of our border and is making steady headway in some Latin American markets as well.

Nevertheless, efforts to promote wider embrace of this natural asset in the United States have thus far, for the most part, met with indifference and perturbing corporate lassitude.

The focus of this underwriter’s work, primarily in the medical risk management domain, has me seeing CI from the perspective of the patient, saddled with a sobering reality: that the hospital to which he has been triaged by his health care plan for an upcoming coronary angioplasty may not, in fact, be his venue of choice.

That is, if “choice” were a consideration.

Fact is, a study published in July 2002 in the American Heart Association’s prestigious Journal of the American College of Cardiology revealed disconcertingly wide hospital-to-hospital differences in post-angioplasty mortality.

Would you prefer to be intervened upon in an institution where there are virtually no unfortunate short-term outcomes . . .or one with a far less inspiring track record?

Without CI coverage, this is not likely to be a matter of choice.

As a self-employed small-businessman in my mid-50s, my biggest immediate concern is not life insurance but rather critical illness coverage.

How compatible, for example, would a three-month stroke-mediated hiatus be with my consuming agenda to grow my nascent enterprise?

What effects might the loss of much-needed interval revenues have on my prospects for resuming where I left off . . . after six months of inactivity imposed by multimodal cancer therapy?

Point taken?

Endeavoring to present the merits of critical illness insurance in a balanced light, I availed myself of learned input from two individuals well known to me in the U.S. reinsurance community, both of them quite active in this domain for some years now. They are Tony Forte (Vice President, GeneralCologne Re in Connecticut) and Susan Kimball, FSA, MAAA (Marketing VP of Living Benefits, ING Re, Denver).

When I asked Susan why she thought CI would be a slamdunk sale for so many prospects, she pointed to the fact that typically two thirds of the aggregate cost of combating a bout with curable cancer is often not paid by conventional health insurance arrangements.

This is an imposing observation when one considers the prevalence of this disease in our society and the fact that 2 in 3 patients are cured.

Tony believes that it is CI’s versatility that beckons. After all, CI is a good fit in almost every market niche, from the high end to employee-benefits to worksite. CI has enormous appeal to the middle market as well and is an inspired element in bancassurance.

Susan adds to this point that CI is also something of a magic bullet, as it were, where mortgage insurance is concerned. Consider that nearly half of all foreclosures are driven by critical illnesses, while barely 3 percent are attributable to death.

If the truth were told, it is the careful choice of language mandated in the critical illness policy that piques our interest as underwriters. The task of defining what is — and what isn’t — a “heart attack,” which involves melding evolving clinical concepts with what is both practical and feasible in an insurance context, is the kind of challenge that inspires us (and is also quite essential to proper product design).

As Tony articulated in his response to my delving into CI recently, there are no fewer than five important issues to tend to in a successful CI product launch:

• Honing the contractual language (as just referenced)
• Tailoring your product to your target market
• Setting up capable underwriting and claims resources to support this unique offering
• Providing for marketing and producer training
• Committing to properly managing and thus successfully growing this line of business

Inspired insurers that make this commitment will acquire pole positions in their respective markets. So convinced are we — the Susans, Tonys, and Hanks — of CI’s vast potential that we have already conspired to take numerous initiatives to push the efforts over the top.

Two consecutive and very well-attended Society of Actuaries’ (SOA’s) seminars on CI inspired the SOA to team up with LOMA and LIMRA to host an upcoming Critical Illness Symposium, set to convene September 18 and 19 in New Orleans. Under Susan’s general chairpersonship this first-ever domestic two-track CI conference is certain to draw a large audience and thus further fuel CI awareness.

Last January, visionary Canadian producer Alphonso Franco (Trenton Financial) orchestrated The World Critical Illness Conference in Vancouver. Dr. Marius Barnard, backed up by a strong marketing-oriented multidisciplinary program, treated some 500 delegates from around the world to an inspiring message on the potential for CI insurance here in North America.

Alphonso is already hard at work planning an encore congress this coming January in lovely Victoria, British Columbia. The hope is that an increasing number of Americans will make the trip after having attended the SOA/LOMA/LIMRA Symposium.

These and many other initiatives will focus a well-deserved spotlight on what critical illness insurance can offer us all.

The opportunities here are crystal clear.