Cost-effective products needed to expand critical illness market

By Kate McCaffery | June 25 2014 11:29AM

Client price sensitivity will always exist in the sale of relatively expensive products like critical illness (CI) insurance. The fact is CI premiums are a pricey proposition at the moment, even with return-of-premium features that are still available today in Canada. To expand the product’s market, more cost effective solutions are required, suggests Alphonso Franco, president of Victoria, B.C.-based Trenton Financial and a leading advisor in the critical illness market.Rates have gone up over time, which is understandable, says Franco, but the price today doesn’t make sense, given claims history and company experience with the product.

“I would ask if insurers and reinsurers want the market to grow,” he says. “If so, the next generation of products needs to be more affordable and practical. Tighter definitions will be the way of the future, unfortunately, but the prices need to come down for this to appeal to people.”

CI can be a tricky sale too, as it generally falls down in the list, behind life insurance, disability, key person arrangements and other discussions during the relatively short time advisors have in front of their clients.

Then, when it is discussed, the product can be seen as just one more way to take one more payment from a client’s bank account each month – especially if it isn’t sold with the same care and attention given to the initial life insurance discussion.

“Nobody ever wants to spend money on insurance, period,” says Corry Collins, partner at Maritime Wealth Management. A well known living benefits specialist, Collins says, “By the time we get around to talking about critical insurance, (the client) kind of throws their arms up and says ‘What else do you want to sell me at this point?’”

Collins also agrees the product is expensive, and that the industry does not appear to be doing much to bring premiums down.

Still, he points out the product sells – if advisors go to the trouble. “The premiums have gone up, but that’s no reason not to sell it,” he says. “Part of the reason people don’t sell critical illness, and this hasn’t changed (over time), is insurance advisors don’t own it themselves. Even life insurance, if they don’t own it, it’s hard to really, really believe in it. They don’t know the product well enough, and clients see that.”

Misinformation on the Net

For the client who actually tries to do background research on the matter too, online advice for reducing critical insurance costs range from the sensible, if simplistic suggestion that advisors back-date a client’s policies, to the positively inane recommendation that clients should simply “avoid getting depression.” All of this does not even begin to take into account information that is written for audiences in other countries altogether.

The amount of misinformation related to insurance products that you might find online, is not quite on par with the level or sheer volume you’d find when searching medical news, or the latest diet fad, but it is increasingly becoming available to those who look.

Some of that “advice,” too, can be decidedly self-serving, reinforcing stereotypes, true or not, about how some advisors/brokers/agents, care more or less about clients than others. This, of course, leads back to the same old advice about client education: Namely that if a client’s own advisor doesn’t provide it, someone else will.

“I don’t think price is really the client’s true objection,” Collins says. While it’s true that clients see the price, he says it takes a certain amount of work with the client, to make them see how different changes impact that price.

“We allow the client to build the product with us,” he adds, describing his office set-up, that includes a wall-mounted smart board that allows clients to watch what he is doing with their application, on screen. “They can see how they’re making the product more expensive, or less expensive, depending on the options, and depending on the structure of the policy.”

While some cost-savings suggestions have merit, each requires a little bit of thought and calculation to determine if the larger strategy, or smaller product modification, makes sense, given the circumstances.

For clients, the advice available online includes the suggestion they back-date their policies, quit smoking, drinking, and get healthy, bundle policies to get lower administrative costs, look for group or affinity club discounts, and shop around.

Judgement call

Those who sell CI regularly, though, say each suggestion, when applied, requires a judgement call at some point.

Back-dating policies might help the client to save over time, but will require they pay back missed months, if they are ‘rounding down’ to their previous birthday. To have an insurer apply new, non-smoking rates, meanwhile, the company will need to re-underwrite the policy, which will take into account the client’s new, higher age, and any new health conditions which might not have been present when the policy was originally issued. As for group insurance, the product might be available, but clients do need to know the difference between a product that is underwritten ahead of time, and one that is underwritten at the time of claim.

For advisors, the real sales advice is two-fold: First, sell the product. “If you don’t bring it up, you won’t sell it. If you do bring it up, you will,” says Collins. “It’s a profitable product. It works around the world, it works here, and there’s a need for it. If there was no critical illness insurance in the world today, it would be invented tomorrow.”

Once engaged too, his best advice is to go beyond the basic application, and give underwriters a reason to agree to the sale. If a client has been tested in any way that suggests cancer, for example, provide a covering letter explaining the circumstances – particularly if cancer concerns were not the reason for testing.

“Give them as much information as you can, and give them details that are pertinent,” he adds. “Find out as much information as you can. Don’t pry, and don’t pretend you’re the doctor, but give enough information so the underwriter can say yes, and justify his answers.”