Mixed results for critical illness insurance sales

By Ian Bolduc | August 12 2009 06:29PM

Two thousand and eight was the best year for critical illness insurance sales in years, however overall results were down in the first quarter of 2009 compared with the same quarter in 2008, research firm LIMRA International reported.

Critical illness insurance sales finished 2008 on a positive note, both in terms of new premiums as well as the number of policies sold, according to LIMRA International's 2008 annual report on Canadian individual critical illness insurance sales.

"This was quite a turnaround for the Canadian CI market, as it was the first annual increase in both policy and premium sales since 2004 and the first time all products experienced a sales increase in a given year since 2003," notes the LIMRA report.

In 2008, the industry collected nearly $83 million in annualized premiums from critical illness insurance. This is an increase of 7% compared to 2007. As for the number of policies underwritten, the various insurers sold 87,329 polices for a gain of 6%.

A large portion of this growth came from permanent, Term 100 policies. The volume of new permanent premiums increased by 15% over 2007, reaching $28.2 million in 2008. A total of 14,747 new permanent policies were sold during the same period, an increase of 22%. According to LIMRA, the success in permanent insurance is due to increased sales of smaller policies. The average face value of a permanent critical illness policy is $102,261. This represents a decline of 6% compared to 2007, but it was offset by a strong increase in the number of policies sold.

As for limited period level policies (T65 and T75), new premium volume reached $37.4 million. This is a gain of 4% over 2007. There were also 5% more policies of this type sold, for a total of 36,602.

During the same period of comparison, the volume of new premiums for T10 and T20 term or renewable policies increased by 3%, reaching $17.4 million, while the number of policies sold grew 1% to 35,979.

LIMRA mentions that the CI market remains concentrated in Canada, with the five biggest players possessing more than 75% of the market. In terms of premiums, the top five insurers were Great-West Life, Industrial Alliance, Manulife Financial, RBC Life Insurance and Sun Life Financial.

First quarter 2009

Meanwhile, in the first quarter of 2009 the number of policies sold slipped by 15%, while new premiums declined by 11%.

The LIMRA report mentions that it was not a "universal decline" because about half the insurers experienced sales growth in the first quarter.

Some insurers told The Insurance Journal that those results reflect the fact that this year's report marks the first time that direct sales are included and they've experienced a dramatic 91% drop. Asked about this sharp decline, Karen Terry, LIMRA's Manager, Product Research, and author of the report, explains that the direct sales reported in the critical illness survey reflect sales through affinity groups. "As a result, the sales are more volatile than those through other channels due to the variation in size of the groups in question. In some quarters, the carriers in this market will enjoy sales to larger affinity groups, which will cause a significant increase in sales for one or more quarters. In other quarters, sales will be through smaller groups, with a corresponding decline in sales."

LIMRA defines direct sales as "business produced without face-to-face contact between the buyer and the agent or other company representative. This includes buyer-initiated purchases made in response to direct home office offerings through mail or media advertising, as well as purchases resulting from telemarketing efforts."

David Baker, Assistant Vice President, Health Products and Insurance Business Development at Sun Life Financial says, "LIMRA results were slightly misleading for Q1 in terms of "Individual" policies. If direct sales were excluded from the results, he continues, the industry would have reported a 1% decrease in new premiums and a 6% increase in the number of policies sold.

Ms. Terry of LIMRA did not comment specifically on what the industry results would be excluding direct sales, but she did confirm that "the declines reported in the first quarter summary report would be less severe without the direct response sales."

Losing ground

The independent financial advisor network saw an annualized decrease in new premiums of 5%. Only the captive network posted a premium increase, at 18%.

Mr. Baker explains that Sun Life's close ties to its captive network let the insurer influence its behaviour more easily. The independent network is a different story. "When you have a carrier channel, you're actively recruiting and trying to grow that business. You're bringing new advisors into a system where CI is just part of the training; it's part of the program," he says.

Ms. Terry of LIMRA confirms this trend. "In our experience, carriers with strong ties to their field force tend to fare better as they do not have to compete with other carriers for the same potential sales."
Satisfied with results

The insurers interviewed by The Insurance Journal said they were satisfied with the overall sales results of CI products in Q1 2009 compared with the same period in 2008.

Industrial Alliance reports a major rise in sales of its CI products Jacques Carrière, Vice President, Investor Relations, says that sales of living benefits products were up 45%. This result includes the figures for L'Excellence, acquired by Industrial Alliance in 2008.

At Desjardins Financial Security (DFS), new CI premiums increased 6%. "We're satisfied with this result because we were missing pieces in our product portfolio," says Nathalie Tremblay, head of living benefits and life insurance.

To fill this gap, DFS launched T10 and T20 policies, each covering 25 illnesses, in late June. "The contract is renewable and convertible to meet the needs of young families. They often don't have the financial capacity to obtain coverage in case of critical illness, so temporary protection is more affordable. It's also possible to convert the coverage to a longer term," Ms. Tremblay explains.

Although Manulife did not disclose its results, John Parker, Assistant Vice President of Living Benefits, Product Development and Marketing at Manulife Financial says CI premium volume rose slightly in Q1 2009. He adds that growth in the number of policies was in the double digits.

Mr. Baker says that Sun Life is pleased with the results but did not mention precise figures. He says that if direct sales were excluded from the sales results, new premiums would have advanced by 7% and the number of policies sold would have risen by 4%.

At TD Insurance, Dave Minor, Vice President, distribution of life and health products and services, says that CI products have been "hugely" successful in the last five years. "For CI we now insure over 600,000 Canadians, so the growth rate for the last five years has been in excess of 500%," he continues. Mr. Minor did not want to share the Q1 2009 results for TD's CI.

Renewable policies

The LIMRA report shows that the number of renewable policies sold was down 33%, at 8711 policies in Q1 2009, compared with the same period in 2008.

"Renewable products saw an especially steep decline as the result of a decrease in direct affinity market sales," said the report.

Policies with limited periods (T65 and T75) were up 4%, at 7815 policies, whereas permanent products grew by 18%, to 3206 policies.