Critical illness

par Marie-Josée Boucher | January 20 2001 08:43PM

Swelling critical illness claims are showing insurers that cancer is their enemy number one. Cancer already accounts for more than half of the $4 million of Commercial Union's claims since the company launched its critical illness product in 1995.

Are insurers victims of their own recent success? "This new business is growing dramatically," said Ed Swerhone, Actuary at Commercial Union. His data revealed a growth in clientele of over 100% in 1998, followed by nearly 60% in 1999. But he added that "the number of claims paid by Commercial Union to date exceeds $4 million."

After cancer, claims originate mainly from heart disease patients, reported Mr. Swerhone.

Stéphane Rochon, Development Manager at Groupe Cloutier, said that 100% of critical illness claims are related to cancer, stroke and heart disease. His firm paid out approximately $3 million in indemnification for some twenty Life Cheque policies, a Commercial Union product. Of that, 84% went to clients with cancer, 14% to heart disease patients and the remainder to stroke victims.

"In critical illness, of every three cases where claims have been paid, two out of the three are cancer!" revealed François Piette, a Communications Consultant for Desjardins-Laurentian Life Assurance (DLLA).

Bernard Gégoux, Product Marketing Manager, Individual Life with Empire Financial, confided that the three illnesses giving rise to the most claims in his company are cancer, myocardial infarction, and multiple sclerosis.

At AXA Insurance, where this type of insurance was launched in October 1999 and adjusted this past September, the trend is crystal clear. "We expect the majority of claims to be related to cancer, stroke and heart disease," said Communications Director, Louise Desjardins.

Even if today it is impossible to paint a comprehensive picture of the numbers and type of claims at all insurers, it can safely be said that cancer, heart disease, stroke, and multiple sclerosis tend to top the list of health problems.

In group insurance, an accurate profile is more elusive owing to the very low number of claims.

In three and a half years, The Citadel paid out two group insurance claims for critical illness coverage: one for cancer and the other for coronary bypass, said Michael Finnegan, Vice-President, Special Risks.

DLLA's Perform Plus, a group insurance policy launched in June 1999 includes a critical illness guarantee. The company offers two types of policies: a basic policy that covers four illnesses, and a more expensive policy that encompasses 18 disorders.

For now, the Vice-President Sales, Group Network at DLLA, André Simard, said he is not aware of major claims in this area. In fact, he considers that the premium of his critical illness group product is still theoretical because it is not backed by any experience. "Right now, the product is in incubation. It is there, but people aren't necessarily lining up to purchase it," he said.

Too early to predict

For Joanne Regan, Director at Canada Life, the uncertainty mainly stems from its nature, not to mention the history of the product. "We have to be very prudent about these evaluations," she cautioned. The Canadian industry has not had a long history of this type of claim. "There have been so few claims in Canada to date. We're underwriting healthy people."

Mr. Piette also said he considers the product too recent to anticipate or foresee any curve that favours one illness over another. He added that some health problems, such as Alzheimer's disease, take more time to diagnose.

For several insurers, the critical illness available in Canada is in its infancy. For example, Canada Life and Empire have offered this insurance since 1996, Clarica in 1997, DLLA in 1998 and AXA in 1999, whereas Great-West and Industrial Alliance launched the product in 2000.

To identify a definite trend, Ms. Regan said she believes the data must cover a period of at least ten years. She pointed out that in Ireland, where Canada Life has been offering critical illness in Ireland for the past 30 or 40 years, close to 80% of claims are related to the three typical illnesses.

Reinsurers' data hardly changed Data supplied by reinsurance companies corroborate these findings. Don Thomson, Vice-President at Munich Re noted that over 90% of claims are linked to cancer and heart disease.

Emile Elefteriadis, Senior Vice-President and Pricing Actuary at Swiss Re, reported that 53% of claims at his company involve cancer, 26% heart attacks, 7% multiple sclerosis, 6% stroke and 5% heart surgery. These percentages closely mirror the figures that the two reinsurers had already divulged to The Insurance Journal in January 2000.

In reinsurance, Munich Re covers a range of over 20 illnesses, but most of its clientele choose the 18-illness package. At Swiss Re, two types of reinsurance predominate: coverage of the three most common illnesses (cancer, stroke and heart disease) and products covering 18 illnesses.

No premium hike

Insurance and reinsurance company representatives are unanimous: the product is still too new to merit a price hike. Consequently, unless there are major changes, no increase in critical illness premiums are projected within the next two or three years. "It will be more stable in the years to come than in the past few years," added Mr. Piette.

In group, a rise in premiums

seems even less likely if DLLA's experience is any indication. "The incidence rate in critical illness is not yet significant," said Mr. Simard. Although DLLA currently insures 150 groups, the number of members does not warrant re-evaluation of the premium. "It would be a really bad time to do this, in a context where costs are rising in group insurance, unlike in the past, when prices were relatively stable," observed Mr. Simard.

In fact, at insurers such as Canada Life group critical illness premiums have been falling rather than rising. Ms. Regan commented that in October, the three critical illness insurance programs, covering an 18-illness spectrum, decreased substantially. She explained that the company now has more precise information at its disposal on mortality and morbidity rates, specifically the various disabilities and chronic illnesses.

More importantly, the recent flood of claims underlines the value of the critical illness product, Ms. Regan said. In February 1998, a 37-year-old woman from Ontario purchased a critical insurance policy with Canada Life. "Less than a year later her physician diagnosed her with multiple sclerosis." She filed a claim and received $200,000.