Critical illness insurance market shaken by increasing rates

By Caroline Phémius | August 19 2004 08:19PM

Is the heyday of critical illness insurance coming to an end? The picture will become clearer only after price hikes in this sector take effect this fall. However, many professionals are not waiting for consumers to hand down the verdict. Instead, they are urging the industry to redefine its target markets as soon as possible.

As a result, relatively untapped markets such as critical illness insurance (CI) for children and group insurance are topping the list of new niches.

The key argument in favour of children’s coverage is that CI is incomplete if it only protects the parents. That’s why promoting child coverage is an avenue with great potential.

The costs of taking care of a sick child can spiral, especially if one of the parents must miss work for a long period. “The problem is even more acute for single-parent families,” said André Therrien, director, living benefits, at Peak Financial Services, a full services managing general agency (MGA). He explained that this insurance must be sold in conjunction with adult policies.

Great-West Life has yet to launch a children’s product. Marcel Martin, marketing and living benefits manager, confirmed that this market is worth developing, and the insurer may very well join the movement in time. “Our living benefits specialists tell us that we should consider offering this product because there is a demand for it. The need is there. We will consider the possibility.”

Canada Life, a Great-West subsidiary, offers the product as a CI rider.

Joseph Wellman, assistant vice-president, living benefits at Canada Life, sees a bright future for CI for children, mainly because parents appreciate the product’s value.

”It’s an easy product to sell” said Mr. Wellman. “For a fixed rate of $250 per year, each child aged two and over in the same family is covered. The same goes for new arrivals in the family after the coverage is bought.”

Sold as riders or stand-alone policies, child CI coverage has its drawbacks, stated David Benamron, director of living benefits at the MGA Copoloff Insurance Agencies. Even though this insurance is worthwhile, the current version is not suitable for children, he explained.

“It’s a good product, but for it to really be effective the definitions of childhood diseases have to be adapted. As it stands, to customize the product you have to buy it as a rider,” he said.

Mr. Benamron believes that the definitions of the stand-alone policy for children are clearly inadequate. “What you end up with is a child two or three years old that is covered for heart disease, Parkinson’s, etc. The value of the product for a child is just not there for now.” By comparison, riders do cover children’s diseases, but it’s the parent that must purchase the insurance, he explained.

RBC Insurance offers an individual stand-alone policy that children can keep into adulthood. “The way we see it, if a family wants to protect their children, they will want to do so permanently,” said John Young, senior vice-president, group Insurance and living benefits.

The RBC product covers the same illnesses as the adult policy. In other words, as Mr. Benamron noted, childhood diseases are still not covered.

Evan Bright, senior director of product development, group insurance and living benefits at RBC Insurance, is willing to reconsider the covered conditions if necessary. “We are open to comments from our brokers, and always consider the possibility of enhancing our products. That being said, we’re satisfied with the results up to now.”

Mr. Young views riders as a temporary, incomplete solution. If one of the insured parents develops a critical illness, the child insured through a rider would probably find it very difficult to acquire their own policy once they reach adulthood. This question never comes up with stand-alone CI policies for children.

Those who see child policies as fuel to boost CI sales may be overly optimistic. Mr. Therrien and Mr. Wellman agree that advisors still display a gaping lack of knowledge and interest.

“Brokers are not yet familiar with [critical illness for children] and are used to selling critical illness insurance to business people,” said Mr. Wellman.

“This product (for children) is a must, especially for single-parent families,” added Mr. Therrien. “And today, advisors are not approaching these families. They don’t understand how important it is. People are ready to buy, but they need more information about the product.”

Pinning hopes on group

Mr. Benamron sees the future of CI in group sales. “The upcoming premium hikes may drag sales of individual critical illness insurance policies. I believe that the future of critical illness is in group insurance where premiums can stay low and where we can sell the product to many people at a time.”

Although not the first, Great-West is the latest insurer to launch a CI product aimed at its group insurance customers.

We’re on a final marketing blitz before the premiums go up,” said Mr. Martin. “We offer a 15% discount for groups of five people or more that purchase critical illness insurance. It’s on an individual basis, and the promotion ends September 21.”

Canada Life is steering clear of group CI. “It’s not in our plans; we’re leaving this up to Great-West,” said Mr. Wellman.

RBC Insurance opted to offer its groups CI policies as guaranteed standard issue riders only. “It’s an individual rider that you can purchase through group insurance, and requires less underwriting,” said Neil Skelding, president and CEO, life insurance. Employers are apparently quite interested in this product, added Mr. Young.