Simplified disability and critical illness product sales are growing strongly despite their more restrictive guarantees. Specialized players are surfing the wave by filling the gap left by traditional high-end products.
Simplified living benefits is a market dominated by niche players. Advisors are increasingly opting for their products, which feature guaranteed issue or simplified underwriting. These policies give customers a second chance who have been declined or rated.
Niche specialist The Edge has offers a product in a guaranteed issue or simplified underwriting version. CEO Neil Paton says that the company’s disability insurance product Edge Benefits has seen sales grow by 42% in the first three months of the year compared with the same period in 2012. With $14.5 million in premiums in 2012, The Edge, a managing general agent, posted 12% growth between 2011 and 2012.
Mr. Paton says his company benefits from the gap between what traditional products offer and the needs of self-employed workers and small business owners. “The traditional world of DI is having challenges: The costs are escalating, the delays to have a policy issued are getting longer and longer and there are declines,” he explains.
This has led to a poorly served yet rapidly growing market segment, Mr. Paton adds. In response, The Edge has expanded the target of its disability product from the original segment, blue-collar workers, to include grey and white-collar workers. “Our target is now focused on anyone that has an income that is not covered by a traditional employer benefits plan,” Mr. Paton says.
The Edge markets its own disability and critical insurance products. RBC Insurance was the underwriter and risk manager of Edge Benefits until May 1, when their agreement ended. Co-operators, a newcomer in this sector, has stepped into the breach (see article, page 30). It now markets seven other products, including special risk insurance (critical illness, fracture, accident, death and accidental mutilation) with ACE INA, health and dental insurance with Green Shield and travel insurance with Alliance Global.
It also developed a distribution agreement with insurers that have a career sales force, including Sun Life Financial and The Co-operators. On Oct. 1, 2012 it signed another agreement with Primerica. This recent agreement was another growth engine for The Edge’s business.
Sun Life is giving The Edge access to about 3,000 advisors and Primerica is opening the door to another 10,000. However, not all the advisors currently sell Edge Benefits. For example, only 100 of the 1000 Co-operators advisors had sold the product before the insurance agreement was signed on May 1. The Edge and its new partner expect this agreement to up the numbers.
John Dark, actuary and business opportunities manager at Co-operators, thinks that the compensation conditions stipulated in the agreement will lead more agents to sell the product.
Co-operators sees this venture as an exciting opportunity, Mr. Dark adds. “They have access to a market they didn’t have before.” Before May 1, the insurer marketed a mortgage disability insurance product only as a rider on its term and universal life products. The new insurance agreement lets Co-operators divide the risk of this product because it can access networks beyond career agents, he points out.
New product line
Niche insurer Humania Assurance (formerly LS Mutual) is also poised to enter the simplified product market. In June it will introduce a simplified product line with no medical exam and instant issue: Humania Insurance without medical exam.
This product features term life insurance, disability and critical illness products that can be purchased separately. The critical illness product covers four illnesses: cancer, heart attack, stroke and coronary bypass.
The product will be sold online. Customers can find the rates on the website, but will have to conclude the sale through an advisor. After meeting with the customers to determine their needs, the advisor will complete the proposal online, together with the customer. “We will receive information right away, and the policy can take effect at midnight. The customer will then receive the policy in the mail,” says Stéphane Rochon, vice-president sales and marketing at Humania.
The customer can access different rate tables by answering a few questions. “For example, customers can obtain three different prices depending on the answers,” Mr. Rochon explains. Yet some things are unavoidable. To obtain disability coverage, for example, the insured must be able to work and not have done jail time. Humania has kept exclusions to a minimum, focusing instead on limitations related to pre-existing conditions at the time of the policy writing. “We thus preserve the product quality, but the premium will be higher,” Mr. Rochon says.
He adds that he is confident that these products will rapidly carve out a place given the Internet approach. To date, the credit insurance product Assure-Debt has led sales at Humania. While new insurance premiums grew by 8% in 2012 compared with 2011, sales of Assure-Debt soared by 25% during the same period.
“With Humania Insurance without medical exam, our goal was to give our advisors an alternative so that they could insure maybe half of their customers declined for other products. In disability insurance, for example, one out of five cases will be declined or modified significantly before issue in our experience,” Mr. Rochon says.
His experience also shows that the decline rate is similar for critical illness products. “For those over 40, it is practically one out of five,” Mr. Rochon says.