Critical illness: Permanent sales on the riseBy Alain Thériault | May 12 2010 04:02PM
Sales of permanent critical illness insurance (CI) policies were particularly strong in 2009 compared to 2008. Sales of permanent coverage even exceeded CI term sales. A number of executives interviewed by The Insurance and Investment Journal believe this a good sign for the business.
Managing general agents (MGAs) have noticed a significant jump in the sales of CI, they say. Years of flattened results that followed reinsurers' premium increases in 2004 now seem to be a thing of the past.
LIMRA International's most recent market survey, Canadian Individual Critical Illness Insurance Annual 2009, confirms this trend (the data excludes direct sales; these were not collected prior to 2009). Sales of CI in Canada, as measured by annualized premium income, increased by 9% in 2009 compared to 2008. The number of policies sold also increased by 2% during the same period, for a total of nearly 90,000. The report also notes that CI sales reached $90.6 million in annualized premiums.
According to LIMRA, four of the five largest CI insurers saw their annualized CI premiums increase in 2009. In addition, half of all players surveyed by LIMRA experienced a similar result.
The LIMRA report also shows that permanent critical illness insurance products experienced the highest rate of growth between 2008 and 2009; premiums increased by 19% and the number of polices went up by 11%.
Permanent products were the only ones to grow in terms of total new sales as measured by annual premiums. In 2008, permanent sales counted for 32% of all new premiums sold, but in 2009, this portion of the market reached 37%. This increase came at the expense of term products, whose share of new premium sales decreased from 26% in 2008 to 21% in 2009.
The lion's share of sales went to level premium products with a coverage period to age 65 or 75, accounting for 42% of new premium sales of critical illness insurance in 2009.
Last year, most players contacted by The Insurance and Investment Journal predicted that the future growth in this market would be in term products. But permanent policies clearly outperformed.
Critical illness insurance sales account for 15% of all the individual insurance sales Desjardins Financial Security (DSF) makes through SFL, Partner of Desjardins Financial Security, and Desjardins Financial Security Independent Network, its independent distribution channels. Nathalie Tremblay, Health Products Manager, individual insurance, at DSF says that half of the company's CI sales were permanent policies. "The need that critical illness insurance meets lasts longer than the one covered by life insurance," she comments.
Even with limited financial resources, she believes that a young family will lean towards a permanent policy if they have the wherewithal. In the early years, a typical family will purchase a small amount of permanent life insurance and cover the rest of its needs with less-expensive term insurance. But in critical illness insurance, Ms. Tremblay says the perception is completely different.
"People do not buy $100,000 of critical illness insurance thinking that they will only need it for the next ten years. In the event of a serious illness, who can say they will need the money more at age 35 than they will at age 65?" she says.
Ms. Tremblay believes the mid-market client will often choose temporary critical illness coverage as a budgetary compromise. In this case, the insured will convert the policy into a permanent plan as soon as he or she has the means to do so.
Great-West Life and Canada have also saw significant growth in their sales of permanent critical illness insurance products in 2009, and the trend has continued into the first quarter of 2010. "The permanent product is more expensive but many advisors and consumers opt for coverage that remains in place because people are living longer," says Darlene Baschuk, the insurer's Vice President of living benefits marketing "The risk increases beyond the normal lifetime of the T65 and T75 policies."
For its part, Manulife Financial expected to see a higher rate of growth in temporary or limited term products, especially in 2009. During the financial crisis, Canadians' incomes were restricted as never before. But despite this, John Parker, Assistant Vice President, product and marketing, living benefits, individual insurance, says that permanent products' annual premiums increased by more than their term counterparts.
He attributes this growth to the fact that the permanent premiums are significantly higher. "Term CI insurance is cheaper and still shows good growth, and price can still be a barrier to many. T10 is extremely affordable and remains the biggest part in overall case counts," he says, and notes that when measured by policy count, the insurer still sold more T10 critical illness policies than it did permanent and limited period policies combined. "It's hard to compare on a premium basis because permanent coverage is about three to four times the price of a T10, on average," comments Mr. Parker.
Long-term care benefit
The insurer also added a long-term care benefit, LivingCare, to all of its critical illness products in the fall of 2008, and Mr. Parker suggests that it may have also played a role in increasing the insurer's permanent CI sales. "This benefit effectively allows the policy to also be used as a long term care policy, which makes it more appealing for consumers to want to keep the coverage for their entire lifetime rather than just to retirement," he says.
At Great-West Life and Canada Life, Ms. Baschuk notes that, despite the strong showing of permanent products in LIMRA's survey results, the company's term critical illness sales remain strong. "Term and limited period products continue to be the leader in our CI product growth," she says. "Young families have already covered off risks like life
insurance, disability and education expenses. Term and level, limited period products provide key income in the early years for the cost-conscious mid-market consumers."
Term products also play an important role in La Capitale Financial Group's critical illness sales. The mutual insurer is aiming at the mass market, where these products are often a better fit.
Kim Oliphant, Sales Director for the managing general agent channel in western Quebec and the Atlantic provinces, makes a distinction between permanent policies and policies to age 75. She notes that, for the same price as a $100,000 permanent policy, a client could take out $115,000 of CI coverage to age 75, including a return of premiums at maturity.
Ms. Oliphant has heard from advisors that clients typically do not keep a permanent product that has a return of premium option past the age of 75. They prefer to cancel the coverage in order to obtain the refund. "By that age, the return of premium is easily 80 to 85% of the insured amount," she says.
Stéphane Beaumier, Vice President for western Quebec at Sun Life Financial, thinks that the appeal of the term product depends on the insured person's age. "We position term as the lowest cost product. The product still remains expensive for people between the ages of 65 and 70."
However, he says some clients are prepared to pay the price in order to cover the risk of a serious illness. As proof, he points to the company's positive results despite the rated policies that are common in this market.
"There are few declines in critical illness because, over the years, advisors have learned to become better at pre-selecting risks," he says. "In our case, we have seen few refusals, but 18 to 19% of our clients are required to pay an additional premium." Mr. Beaumier says that advisors have managed to successfully place most of these rated contracts because clients have a clear need, and are not deterred by price.
Of all of Sun Life's insurance sales in 2009, 19% were critical illness products. Mr. Beaumier says this is an increase compared to 2008, and says that the amount has risen to nearly 20% since the beginning of 2010. He notes that permanent sales made to businesses account for a great deal of this growth.