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Non-cancellable disability upstaged by critical illness

By Alain Thériault | March 20 2002 07:02PM

A mature product, non-cancellable disability insurance has changed little in recent years. The opposite is true of critical illness insurance, which is currently stealing the spotlight in the living benefits market.

Today, the Canadian non-cancellable disability insurance market is the exclusive preserve of four insurers: UnumProvident, Canada Life, Great-West Life and Maritime Life. But to surmise that the lacklustre competition is the main reason for the stagnation of non-cancellable is not true, say the insurers.

Those in the know claim that the product has simply reached maturity. And four companies suffice to guarantee an enlightened choice for brokers and customers alike. They say if about a dozen companies were to offer the product, people would still compare products from only three or four insurers before making their choice. It’s a bit like when you shop around for a car. No one goes to see every dealer before making their purchase, said Joseph Wellman, Assistant Vice-President Living Benefits at Canada Life.

Priority: critical illness

Disability insurance is no longer the darling of living benefits insurers. Pressured by brokers that prefer to sell critical illness insurance, companies are focusing all their energy on this new rising star…to the detriment of disability.

John Macintosh, Assistant Vice-President Market Development at Unum, maintained that critical illness sales have doubled each year, although they have yet to approach disability insurance sales.

And it is not his company that will reverse the trend. Mr. Macintosh said that Unum will emphasize critical illness insurance. This leaves little room for development of guaranteed disability.

Maritime Life is seeing its critical illness insurance sales quietly catch up to those of non-cancellable disability. “It accounts for $4 million of our living benefits premiums. Add to that disability, and our premiums sold in 2001 reached $11.5 million,” Maritime Life reported. The insurer added that the tweaking of the critical illness product this past fall stimulated sales.

The same trend was observed at Great-West, says Monique Maynard, Vice-President Living Benefits. “No changes are envisioned for non-cancellable because the product is competitive. We are focusing our energies instead on critical illness insurance.”

At Equinox, critical illness sales reflect the same trend; levels are nearing those of non-cancellable disability insurance sales.

The industry is strongly emphasizing critical illness, said Susan Halliday, Disability Insurance Product Manager at Equinox Financial Group.

Joseph Wellman of Canada Life acknowledges the market’s interest in critical illness but has reserves. Today, he notes, critical illness insurance is a living benefits leader. Why? The population is ageing and is much more concerned with critical illness. But you have to think of the next generation too.

This interest in health care in general is palpable. At Equinox, for example, even sales of long-term care – a product that has been slow to catch on in Canada – are growing. The product now accounts for 4% of all our living benefits sales, Ms. Halliday noted. Equinox distributes the non-cancellable disability products of its parent, Maritime Life, but brokers are also authorized to distribute products of other companies.

One reason the disability insurance segment is not growing that vigorously, Ms. Halliday pointed out, is that many brokers think that selling this type of product demands too much work. So they concentrate on critical illness, a much simpler and more attractive product in the public’s view. This product also requires less medical information and a less arduous underwriting process.

Lori Boyce, Vice-President Living Benefits at Maritime Life, also commented on brokers’ penchant for CI. People find CI easier to sell than disability, but don’t forget that the CI product is not a substitute for disability. The two meet totally different needs, she insisted.

Ms. Boyce also said that wanting to take the easy way out is not a good enough reason to sell one product over another. Even if the CI product is selling well, many people still find this product more difficult than life insurance because of questions about family antecedents, she commented.

The age of maturity

At any rate, the growth of non-cancellable disability insurance product seems to have tapered off. “The product did not really change, even from the time when there were about 15 players active in the market,” Ms. Maynard said.

For his part, Mr. MacIntosh does not see the need to revamp the product. In the early 1990s, he said, the industry made major changes to these products. For example, the definition of risk was reviewed and underwriting was tightened up. For now, he does not feel any need to modify the product because it is sufficiently profitable.

Ms. Boyce agreed, adding that the non-cancellable product of today is far superior to its precursors. She did not buy the argument that the product still needs to evolve.

She also said that the non-cancellable product is in a stable cycle. Non-cancellable disability insurance is a cyclical product, she explained. When the economy is growing, companies are more aggressive in this segment, whereas when they are slowing, bad claims dampen their enthusiasm.

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