Several players forecast vigorous critical illness group insurance sales this year despite the recession and rising plan costs. The main challenge for group benefits consultants: loosening clients’ already tight pursestrings.
At the Desjardins Group, 40,000 employees recently subscribed to a critical illness insurance (CI) guarantee, supplied by Desjardins Financial Security, within its group plan.
AXA Assurances landed a new lucrative contract in the Maritimes: a network of 26 colleges and universities with a total of 35,000 employees. "This could generate $1 million in critical illness insurance premiums alone," says Mike Finnegan, vice-president, group insurance.
"Sales have been progressing well over the last three years. I had my doubts about this product in 2003-2004. Now I'm glad I was patient," he continues.
AXA also plans to provide its own employees with group CI. Its product was developed by La Citadelle before it was acquired by the insurer in 2005. AXA has over 2200 employees in Canada.
The size of the groups that procure AXA's CI is increasing, Mr. Finnegan confirms. The product, launched in 1997, was originally popular among groups of 200 to 300 employees. Today, it is attracting groups of 2000 to 3000 employees. "Two or three years ago, the average premium of our critical illness groups hovered at $25,000," Mr. Finnegan points out.
He is also proud of the claims history. "We have a very reasonable loss ratio, at 21%. And that doesn't include expenses." A ratio of 21% without expenses means that the insurer pays out 21¢ in claims for each premium dollar collected.
ACE INA, a small niche player, posted more modest sales, but has also seen sustained growth. "The average size of our groups in critical illness insurance is 135 employees. Each buys on average $18,000 of critical illness insurance coverage," says Eddy Levy, vice-president, sales and marketing, accident & health.
The plan is universal: employees must purchase the guarantee, and the employer most often shoulders part, if not all, of the costs. It is also available as an optional guarantee. Among insurers that offer both formulas, the mandatory guarantee tends to predominate.
Among ACE INA clients, for example, 65% of groups opt for the mandatory guarantee versus 35% for the optional guarantee, Mr. Levy points out.
At Sun Life Financial, which offers only the optional guarantee, Josée Dixon, regional vice-president, business development, group benefits for Eastern Canada, reports steady growth in sales. She thinks the economic situation is favourable for optional guarantees. "Interest is even greater because employees are free to buy or not. Our block of business is up 50% since 2008," she says.
The insurer also saw its average premium rise between 2007 and 2008, "because employees are buying more coverage." Yet the market is still very young and relatively underserved, Ms. Dixon says. Sun Life's product has been available since 2002.
The market probably looks particularly young to the biggest players, who often bide their time before entering specialty markets. Manulife Financial is one example: it climbed onboard a little over a year ago.
Why did it wait so long? The company needed time to assess the situation. It entered the market once it noticed a sustained trend, says Dustin Coté, assistant vice-president, business development, group benefits marketing at Manulife.
Mr. Coté admits, however, that future growth will depend on heightened awareness of the importance of this coverage, among advisers and clients alike.
As they wait for the Canada-wide wave of popularity, Manulife predicts that the Western provinces will be an especially strong market for this product. In Alberta, and Saskatchewan in particular, employers see this guarantee as an incentive for potential recruits and a retention tool for existing personnel, Mr. Coté points out.
If the recession is making employees more sensitive to costs, it is not affecting their willingness to infuse group programs with added value, if the price is right, Mr. Coté continues. He thinks CI is the perfect tool in this context.
However, the hazards of the economic slump, combined with the impact of drug costs on plans, are dragging the market, some say. Although Medavie Blue Cross recently sold a new CI plan to a group of 400 employees, Pierre Marion, senior director, sales and business relations, puts the product's success into perspective. He openly admits that he sees rough waters ahead.
"Employers will be very reluctant to add benefits in 2009," he predicts. "For employers, prevention is a much higher priority than adding benefits. Psychological illnesses still account for between 40% and 45% of disability claims, many of which are long-term. There's a lot of managing to do in this area," he explains.
In addition, bringing in an additional benefits will likely strain limited budgets.
Carl Laflamme, vice-president sales and marketing, group insurance at SSQ Financial Group, says that the trend is not to add new benefits on a whole group basis. "Our employers are very concerned about the rising cost of their plans. We're looking at what we can do to rein in the costs, not what we can add."
Mr. Laflamme says that he does not have the actual sales results for 2008 for their product, introduced in 1997. "But the figures aren't huge," he confirms.
These frontrunners concede that their products must be adapted to today's market. The shifting sands even led SSQ to decline to participate in the comparison table this year. "We are rethinking the product. Back in the day, we launched a simple product based uniquely on group. Since then, other players specializing in individual products transformed them to group," Mr. Laflamme explains. "Do we have to increase the number of illnesses covered or add coverage? For example, we cover cancer at 35%. Should we go to 100%? It's all up in the air," he says.
Medavie also plans to overhaul its product, even though its CI, which debuted in 1997, was upgraded two years ago.
One of the more successful pioneers, AXA has not revised its product in "six to seven years," Mr. Finnegan admits, adding that there is room for improvement. The insurer's resolve to stem the rampant multiplication of illnesses covered in group CI is finally starting to crumble. "We have no choice but to follow along." Mr. Finnegan says. He plans to rework the product in June.
At ACE INA, Mr. Levy is convinced that the product's accessibility will trump market lethargy. "The individual CI product is available only when you know a broker. In fact, a sizeable segment of the Canadian population will never be contacted. Brokers are looking for prospective clients that can pay higher premiums for larger policies."
If employers, associations or unions put this product in place, it will let Canadians in the mid-range market gain access to this coverage, often without requiring proof of insurability.
What about the problem of adding another cost to a tight budget? Employers can choose to have employees contribute based on an optional formula, he replies. Despite the harsh climate, the insurer's mandatory plan is doing very well, he says. "Advisors say, ‘employers don't have money to pay more'. But somehow it's working. Brokers that succeed in this market know how to seek out money available in their client's group insurance budget," Mr. Levy points out.
He urges advisors to consider worthwhile substitutions. For example, they could cut down on coverage for dental or eye care and replace it with $10,000 in basic CI coverage for all employees.