Despite critical illness insurance (CI) facing a denied claims rate of 27% in Canada, Ben Miclette, vice-president of living benefits for reinsurer Munich Re, says that the country’s claims experience is very healthy.
In an interview with The Insurance Journal, Mr. Miclette explained that it is a lack of education, not tougher underwriting, which is the culprit for the amount of denied claims. “Over 50% of the claims denied were either not a covered illness or did not meet the contract definition,” says Mr. Miclette.
He adds “there are more misrepresentations on CI than on life insurance and covered conditions are sometimes misunderstood.” He explains that the 27% figure came as a bit of a surprise, but it’s a sign that more CI training is required.
Mr. Miclette acknowledges that though some advisors take biology courses to better understand the covered conditions and that some do research on the Internet, more education is still needed overall.
The figures were taken from a survey Munich Re conducted last fall among 22 participating insurers, not all are reinsured by the company. It was the first time that the reinsurer conducted the industry-wide survey and it has plans to repeat it this year.
According to the survey, the reason for the denied claims was split in three: 38% of the claims did not fulfill the definition, 16% submitted the claim during the cancer 90-day moratorium period and 19% of claims were not a covered condition.
The survey also found that the amount of claims paid has also gone up substantially over the last couple of years. In 2001, there were just under 150 claims but the number increased to 275 in 2003. Since the inception of the product in 1993, Mr. Miclette estimates that there have been a total of 800 claims.
Claims paid out in 2003 amounted to $22 million, a jump from just under $10 million in 2001. However, the numbers are logical and not shocking for Mr. Miclette. “This is within the range of what we expected for a rapidly growing new line of business,” he remarks. Most of the CI sales have occurred in the past two to three years, he highlights.
The survey also revealed that 39% of claims were paid for policies in effect for less than one year, with 2% of policies in effect over five years being paid. “Few policies were sold in 1996, so the 2% looks small comparatively speaking, but 39% is really not necessarily a high number if you look at the number of policies sold in recent years,” remarks Mr. Miclette.
In 1998, there were 6,000 policies sold, which then increased to 83,000 in 2004. There was a jump from under $10,000,000 in new premium growth in 1998 to $90,000,000 in 2004.
In terms of the nature of the claims, the study found that cancer is in first place. Sixty-three per cent of the claims paid were for cancer, followed by 17% for heart attack, 13% for other conditions, 4% for stroke and 3% for multiple sclerosis.
The leading type of claims by cancer were 49% for breast, 24% for prostate, 14% for colon and 13% for thyroid.
Munich Re also found that compared to life insurance, claim denials are two to three times higher for CI insurance. This, says Mr. Miclette, is logical. “The main document needed in reviewing a life insurance claim is a death certificate.” CI is more like disability insurance, he states, in terms of its complex claim procedure.
So are too many covered illnesses adding to the intricacy of the product? Mr. Miclette explains that advisors were asked this precise question during a survey held at the World Critical Illness Insurance Conference last April in Toronto.
“Fifty per cent of the advisors said enough illnesses were covered, 25% said that less should be included and 25% answered that more were needed,” states Mr. Miclette. He adds that there is always a compromise when you include more illnesses. “When you add more, you complicate the product,” he states.
In terms of the client profile for the product, the survey illustrated that 75% of CI buyers are between the ages of 35 and 54, that half of the sales are to females and that 80% of the sales are to non-smokers. The average annual premium is about $1,000 and the average size benefit amount is $100,000.