Munich Re and insurers look at standardized critical illness definitions

By Alain Thériault | May 18 2007 05:55PM

Munich Re brought together six insurers in an informal committee to debate standardization of definitions of illnesses covered by critical illness insurance (CI) products in Canada this spring. Two meetings had already taken place by press time.

Munich Re, which holds a near-monopoly over CI reinsurance in Canada, is brainstorming on the issue with the six insurers that dominate the market.

The Insurance Journal has learned that the insurers on the committee are: Sun Life Financial, Great-West Life (and Canada Life), Manulife Financial, Industrial Alliance and Desjardins Financial Security (DFS) and RBC Insurance. The committee plans to share its findings with the industry in the form of recommendations. The reinsurer and its partners stress, however, that they do not want to impose their will on other market players.

Although Munich Re declined our request for an interview, Hélène Michaud, marketing director, sent The Insurance Journal an email stating the reinsurer’s position:

“Over the past few years, advisors have been commenting on the fact that definitions’ wording for the same conditions vary from company to company, creating at times confusion for advisors and consumers. In an effort to address this issue, Munich Re has brought together six CI insurance companies to review the current definitions, to discuss this perception of differences in the definitions and how this misperception could be remedied.”

The reinsurer then summarized the committee’s progress. “In reviewing the definitions for the key conditions, it has become apparent so far, that the differences in almost all cases are not significant. The committee is currently exploring ways to streamline and, if and where possible, to simplify the definitions. Our main challenge is that the definitions for CI conditions should be worded in clear language understandable by the consumer, while also being precise enough to describe the intent of the coverage,” she continues.

In her message, Ms. Michaud describes Munich Re’s initiatives as a platform for the expression of different perspectives, with representation from marketing, medical, underwriting and actuarial disciplines. She adds that the round table is committed to continuing to review the conditions that make up the majority of claims. “We will provide full details once we complete our review.”

For years, advisors have been clamoring for standardization of CI definitions to remedy a situation in “a state of confusion.” They accuse insurers of making the wording of definitions overly complicated, and complain that definitions of the same illness differ between companies. The recent standardization in the UK is commonly praised. In Canada, however, insurers have seemingly turned a deaf ear to advisors’ concerns on this issue, until now.


While many agents want standardization, some oppose the move. In November, Richard Gilbert, president of Megacorp Insurance Agencies, a managing general agency in Mississauga, Ontario, wrote to The Insurance Journal out of concern that standardized definitions would lead to product mediocrity.

Mr. Gilbert argues that standardized definitions would mean the demise of innovation. “This would cause definitions to have more restrictions or exclusions, leading to increased claim denials and potential lawsuits.”

He also predicts “watered down definitions and the elimination of competition,” which would augur a bleak future for advisors. “If all plans were the same, the industry wouldn’t require as many agents,” he wrote.

Mr. Gilbert chipped away at the British experience. “Standardized definitions don’t eliminate problems; instead they create them. The U.K. has found that standardizing definitions has led to other problems because diagnosis methodology and claims adjudication aren’t standardized.”

George Turpie, vice-president, living benefits, at Great-West and Canada Life, is also wary about standardization. In an email to The Insurance Journal, he says, “We support the concept of providing further assistance to help advisors compare definitions within different critical illness contracts. However, we do not know that enforcing standardized definitions is the answer. In the U.K., where standardized definitions exist, a prominent reinsurer has stated that ‘the recent round of changes to definitions in the U.K. have made the product more complicated with more exclusions, more complicated definitions and more medical jargon.’”

Mr. Turpie dismisses the argument that definitions diverge between companies, at least for the main illnesses. “If we compare the definitions currently available in Canada, we find that for the top three or four critical conditions, which represent approximately 90% of all CI claims, there are already underlying basic definitions in place,” he continues.

The bigger challenge for the industry is to keep pace with the newest medical advances, he says.

When medical terms change and new treatments change or new tools used for diagnosis are developed, definitions and possibly pricing need to change quickly to match.

David Baker, Sun Life’s director, individual health insurance, mirrors Mr. Turpie’s skepticism about standardization in the U.K. He says that the industry must “maintain the integrity of medical definitions.” He adds that he is ready to make “better products for the clients,” pointing out that the committee does not have real power over business practices in the industry. What we need, he says, is to look at everything that can make the product an easier sell.

Nathalie Tremblay, the head of health products at DSF, said in an interview that the industry needs to stop wasting its energy on trying to differentiate definitions. “You have to stand out in some other way, and focus on growth.” Though she stops short of advocating total standardization, Ms. Tremblay explained that the committee is aiming to find common definitions to ensure that an illness is covered in all products to the same extent using the same key words in the contractual definition. “There is no perfect definition,” she added.

She gave the example of a trend in medicine that has seen biochemical detectors supplant electrocardiograms (ECG) as a diagnostic tool for heart attacks. If companies realign their definitions accordingly, what will happen to a claim involving a diagnosis based on an ECG? Ms. Tremblay doubts that this would prompt a company to deny benefits, although the decision would be left to the insurer.

Why did Munich Re limit admission to the round table to six companies? John Parker, assistant vice-president, living benefits at Manulife, replies that this quota was the easiest way for them to bring together a group of players that are willing to work together, and also that represent a major market share. “You need to have the bulk of the industry interested. If you don’t have it, the outcome won’t be that significant he says.

Results are imminent. “Possibly in three to six months,” Mr. Parker says. Like his colleagues, he does not think the industry needs to ram these definitions through. “If there’s differences [between definitions], and companies are very good at explaining them, there’s no problem with that.”

Like Desjardins, Manulife sees the launching of a mass product or “affordable solutions” as a very promising path. DSF launched a mass-market product in February.