Group critical illness insurance is a very small market that needs more marketing attention to help propel growth, says Anil Sanwal, assistant vice president, group reinsurance and development of RGA Life Reinsurance of Canada.
A year ago, The Fraser Group estimated the total group critical illness insurance (CI) market at about $25-$30 million annually or 0.1% of the total group benefits market (see The Insurance and Investment Journal Feb. 2010). New figures were not available at press time.
Group CI is a young market. Most companies introduced their products in the last five to seven years. The main challenge in developing this market is cost for employers, explains Mr. Sanwal. Core coverage such as health insurance and long-term disability within group plan costs are steadily rising, so many employers resist adding another benefit such as group CI. “Employers have just run out of money,” he says.
Also they may find the group CI coverage expensive. “The benchmark in the market for group CI is roughly three to five times the cost of an equivalent amount of group life insurance…But if you’re going take let’s say a hundred thousand of group life, maybe you’re going to take $50,000 of group CI, so there is that balance there.”
Another reason that employers would resist adding this coverage is simply a lack of understanding about the value of CI, Mr. Sanwal adds.
To improve this situation, the insurers need to put increased marketing attention on the benefits offered by this coverage, which is not fully appreciated among the general population. “More focus could be turned towards ‘how do we market this? How do we create that awareness among consumers?’”
One strategy could be to underline the role of group CI benefits in paying for increasing costs incurred by patients suffering a covered condition. Mr. Sanwal explains that there has been more and more cost shifting from the provincial plans as governments offload and scale back benefits.
These costs have shifted from the provincial plans to private plans offered by employers. And, since the last economic downturn, these private plans have been scaling back benefits as well. So now some of these costs are being shifted to plan members. “Group CI is a good fit to cover those out-of -pocket expenses,” he says.
Mr. Sanwal adds, as an example, that more marketing could be done that targets middle-aged, single people, who he thinks are an excellent fit for group CI. “If you think about it, these people don’t have dependents so they don’t need a huge amount of life insurance. What they really need being single is someone to care for them when they do get sick.” This growing segment of the population includes those who have never married, are separated, divorced or widowed.
While sales of mandatory employer paid group CI are quite flat presently, an area of growth has been in employee paid voluntary coverage and under flex benefits programs, Mr. Sanwal says.
He explains that the optional voluntary plans are simplified issue products offered to employees within a group. These plans are generally for a small amount of coverage, such as $25,000 on a guaranteed issue basis. Amounts above that would include some non-medical underwriting (knock-out questions).
Flex programs are when the employer gives employees a certain amount of money to spend on benefits that meet their needs. “The flex programs are one of the segments where CI is taking off.”
Does the group CI market have major growth potential? “I’ll be realistically pessimistic. I’ll say that it’s going to have some challenges just because…the Canadian population has an entitlement mentality. They think the government is going to provide for them or their employer group plan will provide for them, whereas there are more and more out-of-pocket expenses.”
He adds that Canadians also seem to lack awareness about the reality of the risk of cancer, heart attack and stroke. “I’ve seen some results from group CI focus groups where a lot of people say, “it won’t happen to me and that’s their attitude.’”
In an interview with The Insurance and Investment Journal, Kim Hayes, product director, group benefits marketing services and John Salmond, assistant vice president, group benefits marketing and product development, of Manulife Financial say they are definitely seeing growth in their group CI business. “We’re seeing a lot of interest…We’re just coming out of an economic slump and there seems to be a lot more momentum coming up around critical illness,” says Ms. Hayes
Mr. Salmond said he believes the growing interest is related to the overall maturing of the CI market in Canada, both in the individual and group market. “People are starting to get the idea that the core coverage they may need is more for illness than it may be for the big life events. It’s nice to have this kind of coverage in place so you don’t have any interruptions to your current lifestyle or your retirement plans.”
Still, the number of Manulife’s group clients who have added group CI into their plans is still fairly small, says Ms. Hayes. “It wouldn’t be a significant portion. We’ve been in the market since 2007 so we’ve seen significant growth, but it’s not been the type of growth that you would expect 50% of the block to have CI. It really was launched just prior to an economic downturn.”
Tim Griffin, assistant vice-president, pricing and financial underwriting, direct distribution, Sun Life Financial, says, “The percentage of our group block that includes CI is modest but we are seeing this grow. We see that both plan sponsors and advisors are becoming more aware of the value of critical illness.”
In the past two years Sun Life has seen its in-force block grow by over 40% in 2009 and by over 25% in 2010, says Mr. Griffin. He adds that in 2011 he expects strong sales.
Ms. Hayes adds that what is particularly encouraging for group CI is that greater interest is being expressed by advisor groups. “There is a better understanding amongst the advisor groups of the value of critical illness, so I think that’s going to influence sales.”
By advisor groups she means advisors who sell both individual as well as group benefits, and some of the larger consulting houses such as Mercer that “do a really good job of assessing CI offerings in the marketplace and are promoting it actively with their clients as well.”
Mr. Griffin says Sun Life is also seeing increased advisor interest. “We see more interest and we believe it is because Group CI is becoming more mainstream and that clients are now asking for the benefit.”
Mr. Salmond says as we come out of the recession he sees distribution momentum behind group CI. “As people get back to financial planning and doing the things that they should be doing they’ll realize that the big gap that they have in their financial plan is a CI component. And, I think that will pick the interest back up.”
For those employers who choose not to add group CI to their plans, Ms. Hayes says cost is the main factor. “It could be anything from they decide they don’t want to increase the cost. There could be other things going on in their plans or in their organization and they just don’t have the budget.”
Mr. Griffin of Sun Life says the main reason that employers decide not to add the group CI benefit would be “the perceived extra administrative work and, in some cases, systems costs of adding an additional benefit. I would also say that in some cases, the plan sponsor is not convinced of the value of critical illness.”
He adds that voluntary plans are selling better than employer-paid, mandatory group CI. “The majority of our sales are on the voluntary employee-paid plans, however recently we are starting to see a stronger demand for mandatory coverage.”
For those employers who do decide to add this coverage, the competitiveness of their industry is often a factor, says Ms. Hayes of Manulife. “If an employer is in a really competitive space and is trying to attract and retain, a richer benefits package which features CI would certainly be advantageous,” she says.
Mr. Griffin adds that he agrees that marketing attention is needed to increase sales in this sector. In this regard, the company is trying to make sure that its account executives, who sell group benefits, “are keeping Group CI at top-of-mind when they’re looking for opportunities to provide their clients with value added products.”