In the critical illness (CI) insurance business, term coverage is leading sales growth thanks to its affordability. Advisors are able to offer low-cost coverage as a door opener, and clients are more likely to renew these policies than they are their life insurance.
According to industry research group LIMRA, most of the new CI insurance policies sold in Canada during the third quarter of 2015 were for term coverage. These 35,752 term policies represent nearly half of all CI insurance sold during the quarter.
One of the attractions of term coverage is that it is cheaper to sell than long-term or permanent policies. In an interview with The Insurance and Investment Journal François Moïse and David Benamron, the business development managers for MSA Financial, point out that renewal premiums are also much lower for CI (compared to their initial premiums) than they are for life insurance products.
“In general, advisors have seen that CI sells very well as term coverage. The renewal rate is more affordable than individual life insurance, where it can sometimes be four to six times higher than the original premium,” says Moïse.
Nevertheless, advisors do not always agree about which product they should be recommending to their clients. Many find it more prudent to sell permanent coverage, but by doing so they risk losing the prospects who find the offer too expensive.
A specialist in living benefits products and advanced cases, Benamron points out that permanent CI insurance with a return of premium feature is mostly favoured by businesses, “since entrepreneurs have longer term objectives and can afford to pay the premiums.”
A term product is better suited to the needs of a family that faces budgetary constraints. “A 10-year term critical illness insurance policy will cost [at renewal] at most twice the amount of original premium, depending on age. Someone between 30 and 40 can renew at almost the same rate as a new client of the same age (going through the underwriting process),” observes Benamron.
He explains that it is more difficult for the insurer to process a CI application than it is to underwrite a life insurance policy. To qualify for critical illness, the insured must be healthy and not have a family history that indicates there is a risk of developing a serious medical condition. Tim Landry is an advisor who specializes in living benefits. He has teamed up with David Engl, an advisor who recently joined Braley Winton Financial Group. The two partners focus in particular on providing solutions that are suited to family budgets, although they are also active in the small business market. They have developed the QTR Solutions brand (QTR stands for “quality time remaining”), for which they have also created a web site. The initiative aims to educate consumers about the importance of living benefits products. Its main message is that health is someone’s most precious resource.
For his part, Engl became aware of the need for long term care insurance through personal circumstances. “What really convinced me of the importance of living benefits insurance products was my family experience. The cost of our parents’ care reached $700,000. The situation really opened my eyes. It changed my business perspective,” says Engl. “Tim and I realized that the insurance industry’s products and marketing materials were not focused on the right things. We created an independent brand and a website, designed to educate clients and advisors more effectively. Our message to our fellow advisors is that living benefits are neither that hard nor complicated to sell. Living benefits can be, in many situations, even more important than life insurance. At least if I die, I no longer have to pay my bills.”
Often sold to customers who already have life insurance or disability insurance coverage, products like long term care and critical illness insurance sometimes have to be tweaked to suit clients who have more limited financial resources. “If the client is able to give me a budget, I can create something for him, which is better than having no coverage at all,” says Landry. “Depending on the budget, you need to provide an adequate amount of protection that is as close as possible to their financial needs, but for a short period. Lifetime coverage, that’s the Cadillac.”
Term coverage is this more modest vehicle. “In critical illness insurance, too often we hear advisors talk to their clients about a permanent product, or limited period coverage up to age 75... with return of premiums at maturity. But there are other ways to cover risk, such as Term 10 or Term 20,” says Landry.
Claudine Cloutier, vice president of sales and director of living benefits at managing general agency Groupe Cloutier, offers examples in support of this position. “I hope that advisors are not only talking about big critical illness insurance policies. Many now know that the family market can benefit greatly from term coverage. Happily, the term product has been promoted a great deal by advisors in this segment,” she observes.
According to her calculations, a 40-year-old male non smoker can obtain $25,000 of 10-year term CI coverage for a monthly premium of $17.24. This translates into an annual premium of $191.50, and premiums at renewal of $399.00. Using the same criteria, a woman could obtain a $25,000 CI policy for a monthly premium of $18.05. This translates into an annual premium of $200.50, and annual premiums at renewal of $366.25.
She points out that, at this price, the CI policy even includes a 100% refund of premiums on death, as well as Best Doctors services for the family, parents and in-laws, and assistance services. “We sell a lot of this type of product, but still not enough compared to the market potential,” says Cloutier.
At Financial Horizons Group, Nancy Elkas, director of living benefits, says she is building on the synergy between living benefits and RRSP season. She is encouraging advisors to do more cross-selling, arguing that it is important to protect the assets that the client has accumulated against the disaster posed by a loss of health.
Elkas says she is seeing a lot of sales of critical illness riders. “When selling term life insurance to cover a mortgage, you can ask them if they want a small side of CI with their order,” she jokes. “The advisors can easily sell a CI rider. The underwriting is straightforward and easy.”
Elkas believes that this straightforwardness is behind many of these CI sales. “The products are not as comprehensive as the individual life insurance products, but advisors still gravitate to them. It is not the low cost that motivates them, but rather the simplicity of issue. Even with a 10-year term policy for $25,000, underwriting remains a challenge,” she said.
She welcomes the fact that the industry is positioning critical illness insurance more and more as a product that can satisfy needs with both term and permanent coverage. “It took years to turn the ship around. Insurers like SSQ Financial Group helped us to do it. With Tempo (a term life insurance product that was acquired as part of the AXA Assurances portfolio) they marketed the rider that covers cerebrovascular accidents, heart disease, and dangerous cancers for $20,000. A lot of advisors chose to use it to build all-in-one mortgage coverage, and thus compete with the banks,” says Elkas.
She believes that longer term protection can also be affordable in some segments. “Term critical illness insurance to age 75 years is not expensive for a prospect who is 30-years-old. Between ages 40 and 50, shorter term insurance becomes attractive because renewal premiums come later in life,” notes Elkas. This leaves the client with more time to build up his retirement fund.
Coverage for all products has been further enriched thanks to standardized definitions for critical illnesses. First proposed in 2013 by the Canadian Life and Health Insurance Association (CLHIA), they were accepted by some early adopters such as RBC Insurance in 2014. Others soon followed, including Manulife, SSQ, BMO Insurance, Great-West Life, and Canada Life. However, some companies such as Sun Life Financial maintained their own definitions.
These definitions have resulted in coverage for two new life-threatening diseases: aplastic anemia as well as meningitis (bacterial or purulent). The definition for cancer was also refined. In some cases where the insured is likely to survive if the disease is detected early, the condition is now only partially covered. This includes two conditions that used to be completely insured, namely chronic lymphocytic leukemia (CLL) in stage 0 as classified by Rai, and papillary thyroid or follicular cancer in stage T1.
This results in a dilemma for advisors, says Cloutier. They must choose between a product that offers the new definitions and one that does not. “Prior to the adoption of the 2013 definitions, these conditions could maybe have been 100% covered in some cases. On the other hand, it is a question of types of cancer that are generally easy to treat, and if they are compensated at 100%, the policy is terminated and the insured will no longer be covered afterwards. If the condition is only partially covered – for example at 25% as is the case at Manulife with a maximum of $50,000 – the person who contracts the illness can file a claim and still remain insured, in case of another CI diagnosis, for 100 per cent of the initial coverage” notes Cloutier.
Creating group coverage with individual policies
Sales of group critical illness are lagging. Faced with rising drug costs, employers are reluctant to increase the amount of money they spend on benefits. Some managing general agents (MGAs) are offering collective solutions designed using only individual products.
MSA Financial does not have a group insurance department. The MGA does, however, have the expertise to offer a combination of individual policies to the entrepreneurial business client.
“We group together individual CI policies under a buy-sell agreement, for example. We can also group together people from a company who are the same employee class, such as executives for example,” explains David Benamron, director of business development, living benefits, and advanced cases at MSA.
Benamron acknowledges that the premiums must be paid separately and are more expensive than group insurance premiums would be. He also notes that the insured must be prepared to go through the complete underwriting process. However, the employee obtains better coverage, including coverage for a greater number of conditions.