As the financial crisis continues, clients are keeping a close eye on their disposable income. In this kind of environment, how can advisors sell critical illness insurance? The answer may well be in term critical illness insurance (CI) policies, rather than permanent.
"Term has some momentum now and I think this will continue, especially in this economy where people are trying to keep costs down; it's a perfect opportunity to make sure that clients have protection, but find it affordable at the same time," says John Parker, Assistant Vice President of Living Benefits, Product Development and Marketing at Manulife Financial. He adds that the insurer has made an effort to promote term policies, since one of the barriers to CI sales has been the accessibility of the product.
According to John Young, President and CEO of RBC Life Insurance, T10 CI may be attractive because of the lower entry cost and the possibility of converting it to a longer level term plan or a permanent plan later on. "That is a strategy to manage entry costs if a client can't afford the premium of a T100 up front. If he would really like to buy the limited level plan, that is a T65 or a T75, buying the T10 is a way to get in, get the protection now and convert it when it is economically feasible," he says.
Stéphane Rochon, Vice President of Sales and Marketing at La Survivance, agrees that the growth in term policies is significant at the moment. "For instance, the 40-year-old smoker market has opened up because of this product," he says. "Now, we can insure them at reasonable rates." He also says that, for every permanent CI policy his company sells, it sells three term CI policies. "But in terms of premium volume, permanent coverage will certainly remain strong because it costs three times as much," he concludes.
Nathalie Tremblay, head of Health Insurance Products at Desjardins Financial Security (DFS), says that consumers sometimes want to cover a temporary risk, such as a mortgage. "In this case, a T20 comes out as the appropriate product," she says. "A client who takes out critical illness insurance is, on average, 40-years-old. With a T20, that will take him to age 60. This covers the most active period of his life, when he's in a very important accumulation phase, a crucial period," she adds. Ms. Tremblay emphasises, however, that for clients who have the means and who want lifelong protection, the right strategy is to sign up for a permanent policy.
The permanent market is saturated, according to Mr. Rochon. "Sales of these policies have reached a plateau; we are still selling a lot of them, but all of our growth is coming from term. It must also be said that competition is more fierce in the permanent area; you have a dozen players, while with term, there are three or four competitive ones," he says.
Reluctance and solutions
The fact remains that many financial advisors are reluctant to offer critical illness insurance to their clients. Last year, Industrial Alliance identified one impediment to offering this kind of coverage. According to Jacques Potvin, Vice President of Individual Insurance and Retirement Products, about 40% of applications were refused, which is a much higher percentage than in life insurance. "This situation contributes to advisors' low interest in offering critical illness insurance," he explains.
For this reason, the company decided to launch a simplified application for T10 and T75 CI policies. "The client has to answer nine questions and he knows if he'll be insured or not. That brings a lot of grist to the mill, and it's an approach that has generated a great deal of interest," he adds. After this initiative he says that advisors saw the number of accepted applications increase from 60 to 85%.
Other insurers have also developed strategies to help them increase advisors' interest in critical illness. RBC Insurance, for example, introduced a combination product. "If the client buys a term life insurance policy and applies for a critical illness policy at the same time, we waive the policy fee on the term life insurance," explains Mr. Young. The reason behind this initiative is to make it easier for the advisor to broach the subject of critical illness. "We have designed one application that advisors can use to apply for both products at once," adds Karyn Kasperski, Critical Illness Product Manager at RBC.
In April 2008, Munich Re adopted benchmark definitions for 26 critical illnesses covered in Canada. Since then, several insurers have adapted their contracts. It is now easier for advisors to offer a CI product to their clients without getting lost in the differing definitions of each product provider.
"Although there were not any significant differences in the definitions that companies were using, there were enough to create confusion in the market and to discourage advisors from selling critical illness policies. We also know that some definitions had to be updated to better reflect the definitions used in the medical community, thus improving the claims process," explains Hélène Michaud, Assistant Vice President of Marketing at Munich Re. "It will remove an excuse for advisors not to sell this kind of insurance," says Ms. Tremblay of DFS. "For advisors who really want to take an interest in critical illness insurance, it will provide them with some comfort since they aren't medical experts."
Ms. Tremblay still finds that the industry's initiative lacks punch. "In the discussions between Munich Re and the principal insurers, there was a question of establishing an identifying mark or a seal in order to rapidly identify when a company had adopted the uniform definitions. But there were also legal considerations and difficulties in doing that, so the companies decided not to do it," she explains. As a result, an advisor cannot quickly determine if a given company is using these definitions.
For Mr. Parker from Manulife, the standardization of definitions serves to stimulate growth in the CI market. "With more advisors comfortable...we felt that this would be a good thing for the industry and potentially grow everybody's sales," he says.
This is an opinion that Ms. Tremblay shares. "It certainly did help," she says, but notes that simply benchmarking definitions will not create an immediate explosion in sales.
Although insurers questioned by The Insurance Journal maintain that they saw growth in the sale of CI products in 2008, they all hesitate to attribute this success to the new definitions alone. Why? Most adopted them in the second half of the year and at the beginning of 2009, while others are still planning to do so in the coming months.
Often, the new definitions are incorporated when changes are being made to an existing product, or simply when a new product is launched. "It is difficult to say if it generated more sales or not, since we had just completely remodelled our product. But one thing is certain, lots of advisors saw it in a positive light," says Industrial Alliance's Mr. Potvin.
"We've heard very positive feedback from advisors in terms of this initiative. We think that this will translate into more sales for the industry and in the short term, we're starting to see some of the positive effects. Is it too early to tell that it's been a 100% success? Probably, but certainly in terms of what the initial feedback is, it's been very positive," says Mr. Parker.
David Baker is Assistant Vice President of Health Insurance Products and Business Development at Sun Life Financial. "Given the number of companies that are adopting the new standard, I think it's really tough for a company not to have them," he says.
And yet, at least one insurance company doesn't plan to adopt the benchmark definitions in its contracts. That company is La Survivance. "We decided to keep our own definitions," says Mr. Rochon. He believes that uniformity only solves a short term problem, in that policies issued in one year will share the same definitions. But these common definitions are liable to be revised from year to year. That means older contracts could have different definitions than newer ones. "So, you have to ask if we're not chasing our own tails in adopting this."
One definition is already under revision. Ms. Michaud from Munich Re says that the Canadian Life and Health Insurance Association's critical illness benchmark committee is currently reviewing the definition for Parkinson's disease. "There is some discussion on what should be the appropriate trigger for benefit qualification under Parkinson's. There is a review process where companies will have the opportunity to provide feedback on the current definition and potentially propose a change."
Offering the product is the key
"We're hoping that advisors will continue to talk to clients about CI. As an industry, we're taking efforts to remove some of the barriers by introducing benchmark definitions and continuing to evolve the product and make it appealing," says Mr. Baker from Sun Life.
For his part, George Turpie, Vice President of Living Benefits at Great-West Life, has this message for financial advisors: "I think it's important that advisors consider critical illness insurance. It's not a product that clients are going to ask for, but it's a product that clients will understand, especially when they think about people they know who suffered a critical condition," he says. "Then they'll see how receiving a payment could help if it happens to them."