Reinsurers backs critical illness insurance guarantees

By Mathew Kokas | February 20 2004 02:33PM

“We’ve decided to maintain rate guarantees!” declared Ben Miclette, vice-president, living benefits at Munich Re Canada, before an enthusiastic crowd of about 600 at the World Critical Illness Insurance Conference this January in Victoria, B.C.

Munich Re has arguably the largest portion of the critical illness reinsurance market in Canada, and is the most active in signing new treaties.

Mr. Miclette said Munich is keeping the guarantees largely because of broker demand.

The catch? Brokers should see rate increases in the near future. Mr. Miclette emphasized that the market needs a correction in premium rates. “There will be 13% to 17% increases between companies,” he stated. “This will ensure the product will be there in the long-term.”

Gary Mooney, vice-president at Optimum Re, attended the Conference, although he was not a speaker at that session. Contacted later, he also confirmed that Optimum Re has supported fully guaranteed rates since its entry into critical illness insurance (CI), and intends to continue doing so.

Fortunately, the initial design and pricing of CI in Canada was much better than other countries, explains Mr. Miclette, therefore Canada will not face the 30% to 50% rate increases that are taking place in the U.K. on similar products.

The outlook on return of premium features is also very positive, he said, because they have been narrowed to a few very good features.

What else has pleased the reinsurer? More stable condition definitions, and the number of claims – about 250 to date – are within expected limits. “The quality of claims are good,” said Mr. Miclette, “and we have not seen anti-selection.”

In addition, Mr. Miclette estimated total CI sales in Canada this year at about 60,000 policies, and said sales will continue to grow.

In a later conference, Monique Maynard, vice-president, living benefits at Great-West Life and Canada Life, agreed with Mr. Miclette that rate increases are on the way. She said the increases are required for the survival of the product and ultimately to the benefit of consumers.

Moreover, just days after the Conference, Maritime Life announced that it is increasing its rates on its Term-75 CI by 10%. This applies to new business only.

Cautious reaction

Sean Long, broker and founder of, is sceptical that the rate increases will help keep the guaranteed products around for very long.

Before beginning his seminar titled “The top five markets for CI sales,” Mr. Long noted that non-guaranteed products, such as the one just launched by Cumis, cost nine to 16% less than other guaranteed products. Next year, after the 13% to 17% rate increases, he stated, there will be 30% difference in price. Non-guaranteed products will all of a sudden become very attractive to consumers. “What are [the insurers] going to do then?” he questioned. This is the beginning of the change away from guaranteed products, he said.

Rates in flux

Alethea Lyn, lead pricing actuary at Canada Life, spoke about product design and pricing of CI in her presentation. She stated clearly that there is “no creditable experience on Canadian morbidity, lapse or mortality” on CI. The product has just not been around long enough, she explained.

“The price of CI is based on what we think the CI unit cost will be rather than what it is,” said Ms. Lyn. However, “things can only get better with more creditable experience,” she added.

So far, claims by females have outnumbered claims by males, continued Ms. Lyn (see tables). But as data matures, she expects claims to even out to 50% each.