Banks charge into critical illness insurance

By Marie-Josée Boucher | January 20 2004 02:39PM

Armed with an array of simple attractive products, the banking sector is making a strong foray into critical illness insurance (CI). But a CI expert warns insurers to cast a stronghold on their market share.

TD Bank, National Bank and Scotia Bank offer CI to cover mortgage loans. And National Bank Life Insurance also launched its own critical illness insurance product: Mediplan. Other banks have also ventured into this market, but not with their own product. For example, CIBC offers a price shopping service, and transmits CI insurance applications to life insurance companies. And Royal Bank has been selling individual critical illness insurance through its subsidiary RBC Insurance for the past few years.

Alfonso Franco, CI guru and founder of the World Critical Illness Insurance Conference, explains that if banks are charging into this market, insurers are not doing their job. “Insurance companies lost their domain in RRSPs to banks years ago. Insurance agents have to step-up and protect clients. If we don’t do it someone else will.“

And insurers have cause for concern. According to figures compiled by TD Insurance, the bank holds 20% of the national market share for mortgage loans. In fact, 50% of mortgage customers that decide to purchase loan insurance opt for the CI product. That’s one in three clients, Nader Gorgi, vice-president of credit protection adds. Mr. Gorgi explains that the product is not advertised and is offered solely when customers come in for mortgage insurance.

However, Mr. Franco says that there are pros and cons to the banking phenomena. Though he is happy that people are getting at least some form of coverage he feels the banks’ plans are not comprehensive.

The TD product covers the basic three illnesses, but Mr. Franco questions what happens to the other 18% that don’t get those diseases. “Give the people the most comprehensive coverage because the cost factor is very small between four and 24 illness.”

However for TD and National Bank, Simplicity equals supremacy. They want to satisfy customers’ basic needs by offering a simple, practical and easy to purchase product.

In effect, the strategy is a response to a comment frequently heard in the CI market: insurers’ products cover too many illnesses. feels that the simplicity of the TD product is one of the reasons clients are buying into it.

“With CI the customers see the value and from a sales staff standpoint it is simple to explain,” says Mr. Gorgi.

In contrast with the TD product, National Bank offers an individual insurance product not tied to a loan. Mediplan is sold in the form of five-year term insurance with a rising premium. “We distribute our product via direct mail advertising,” says George Ferland vice-president, actuarial services, at National Bank Life. “Because the product is simple, it does not require an elaborate explanation. That’s why we don’t need financial advisors to distribute it.”

Scotia Bank’s Heath Crisis Protection Plan is fairly comprehensive, covering eight illnesses altogether says Sue Stecho, vice-president domestic creditor insurance. Aside from being sold with creditor insurance, the product is also available as a stand-alone product.

However Ms. Stecho explains that the bank has not experienced huge CI sales. “We’re doing well but we aren’t doing as well as expected. But it is partly for the reason that we don’t advertise it and we haven’t placed much focus on the promotion of it.”

So can more banks entering the CI market be expected? “From a consumer standpoint the more they ask for it the more banks will follow suit,” highlights Mr. Gorgi.

Kathryn Giffen president of RBC Insurance explains, “If other banks are serious about offering a broad range of products it would be natural for them to add the CI product onto their insurance portfolio.”