Voluntary group critical illness insurance makes a breakthrough

Critical illness insurance premiums totalled nearly $510 million on average each year in Quebec for 2016, 2017 and 2018, according to the Critical Illness Insurance Supervisory report published by Quebec regulator, the Autorité des marchés financiers, in December 2021. Critical illness (CI) insurance represents approximately three per cent of the total premiums written annually by insurers in Quebec for all of their life and health insurance products, or about $17 billion.

Of the total premiums written for CI insurance, 73 per cent are written in individual insurance and 27 per cent in group insurance, according to the AMF’s statistics. These statistics also show that individual insurance represents 18 per cent of CI insurance policies written, while group insurance makes up 82 per cent.

The huge gap stems from the difference between the two sectors: Individual insurance is purchased by a single insured, whereas when group insurance is purchased by an employer, policies (certificate of insurance) are issued for each employee who participates in the group plan. In addition, group policies are often purchased for small face amounts. This means they are generally less expensive in terms of premiums than are individual policies.

“Group CI is a small component of overall spending on group benefit programs,” says Ken Fraser, founding president of the research firm Fraser Group. “It makes up only 0.5 per cent of the $50 billion industry,” he explains.

Even so, premiums for this benefit are growing faster than for more traditional benefits, such as life or dental insurance, he points out. “Over the last five years, CI premiums have been growing at an average annual rate of 9.4 per cent compared to 4.2 per cent for all benefits combined,” he says.

Among insurers, Sun Life has seen a downturn in group CI insurance purchases over the past two years. “Member uptake has decreased over the last two years due to COVID, and we are starting to see rebound activity,” Mark Arruda, AVP Insurance Product Management, at Sun Life Financial points out.

Marie-France Amyot, Vice-President of Group and Business Insurance at Desjardins Insurance, finds that group CI insurance sales have remained fairly stable since 2017. “With the exception of 2020, when there was even an increase in sales of this product,” she says.

As for group insurance in general, Amyot says she has been striving to improve Desjardins Insurance’s solutions to support employers and members, particularly regarding wellness and mental health issues. “We will continue to focus on innovations like telemedicine and tools for managing sleep disorders,” she says.

Optional CI breaks new ground 

At iA Financial Group, premium growth for group CI insurance is fairly stable, says Andrée-Anne Bourgeois, Director of Products, Communications and Marketing, Group Benefits. “It’s one of many group benefits that hasn’t received much attention in recent years,” she says.

Interest in the benefit was stoked by the pandemic, Bourgeois continues. “COVID-19 has raised plan members’ and employers’ awareness of the importance of having a tailored plan that provides for the worst and takes care of employees’ well-being and overall needs.” Coming from different generations, plan members need more personalized products. “They want to be able to choose the amount of coverage, and add a spouse and children. Digital platforms allow us to offer a product that can be adapted to different types of employees.”

These platforms can also help pinpoint the right time in an employee’s life cycle to offer this type of benefit, “such as the arrival of a first child,” Andrée-Anne Bourgeois points out. 

She mentions that voluntary products are gaining in popularity and are fuelling the growth of group CI insurance premiums at iA. “There are still some mandatory critical illness benefits, but the popularity is coming more from optional or voluntary benefits,” she says. “Employee voluntary or optional critical illness coverage is the fastest growing because it allows the employer to meet the employee’s need and attract and retain talent. It also does not increase the cost of group insurance [for the employer].” This is because the employee bears the cost of a voluntary benefit.

Employees are making an individual choice by opting for voluntary coverage. However, the offer is a group product, Bourgeois explains. This means that the price and risk selection are more advantageous for the employee than they would be with individual insurance. “All the employees in the group who buy the benefit are under the same group contract,” she says.

Booming in the West

Éric Trudel, Executive Vice-President and Lead, Group Insurance at Beneva, says he is experiencing great success with group critical illness insurance, more so in western Canada than in Quebec. He confirms that voluntary coverage is being eagerly snapped up. “Coverage sold on a voluntary basis is particularly popular,” he notes. Mandatory critical illness coverage is less popular, in part because it “adds a cost for everyone in the group plan,” Trudel explains.

He says that employees in a group can also choose to add increments of insurance coverage on an optional basis at each renewal of their mandatory (annual renewable) coverage. Those who purchase optional coverage represent, on average, a significant uptake rate compared with all group members, he says.

“We sell the optional critical illness benefit as part of our specialized group insurance line for employers who self-administer their plan. We offer it through brokers to service their self-administered block of clients,” explains Trudel. This makes the administration of critical illness coverage less expensive for these groups.

Beneva inherited this group product line in 2012, when the insurer (then SSQ Insurance) acquired AXA Insurance and its specialty group insurance subsidiary The Citadel, Eric Trudel adds. “Our specialty block represented $60 million of our $3.2 billion in group insurance premiums in 2021. This block represented between $30 billion and $40 billion at acquisition. That’s still interesting growth in 10 years,” he says.

Easier said than done

Gavin Mosley is an Ottawa-based group insurance broker and owner of Mosley Group Benefits. He also developed The GroupBenefitz Platform, an insurtech that allows him to serve other brokers and associations. Among other things, he offers Parachute Critical Illness Insurance digitally to his corporate clients of all sizes. This platform provides two optional benefits (life and CI) insured by Temple Insurance Company, Munich Re’s insurance provider in Canada. Parachute offers different coverage amounts depending on group size and whether medical evidence is required.

Gavin Mosley says that optional benefits are a big part of his practice and his digital platform. In his practice, CI insurance is not an easy sell. “I agree that group CI sales are flat. I don’t have companies break down my door, looking to add critical illness to their plans. It wasn’t this silver bullet that we thought it might be,” he says. He adds that optional CI coverage is much harder to sell than life insurance because it is much more complicated to explain.

Mosley mentions that the voluntary benefit offering has been more firmly established in large companies for the past few years. The case of small and medium-sized enterprises (SMEs) is quite different, he says. “Big enterprises had access to choices for years, with a very robust voluntary benefits offering. This is very early in the small and mid-size enterprises (SME) space. One key focus of our insurtech platform is enabling choices. But implementing choices in SME segments in Canada is still very tough,” he says.

Mosley points out that small businesses with 20 or fewer employees make up the majority of businesses in Canada. Those with 10 to 20 employees represent one of his largest markets. In fact, the vast majority of these companies choose a one-size-fits-all plan. This is no longer the right solution: “We’ve got five generational cohorts of people in the workplace,” he explains.

Mosley has an ace up his sleeve when it comes to introducing optional critical illness coverage to SMEs: Parachute is a third-party administrator. Employers can thus offer the coverage without additional administrative burden. Because the platform is independent, its benefits remain in place even when the primary carrier of the plan changes. “CI and Life Voluntary benefits: we always sell the two. The client is not tied to an insurer,” he explains.

Well aware that CI insurance is not a substitute for disability insurance, Mosley still believes that optional coverage meets a need in the small business market. “Where I see voluntary critical illness filling a vital gap is that most SME don’t offer short term disability. Only 15 to 20 per cent have any sort of income replacement in the short term. Most plans have long-term disability insurance, but it takes four months to get there. A CI lump sum can cover any deductible on drug expenses and other unforeseen costs,” he says.  

Scale matters 

Allstate Canada offers optional CI coverage through Allstate Benefits, a division that is also active in the US. Bob Mongia heads up the Canadian operations. He explains that Allstate offers group CI insurance on both a voluntary and mandatory basis. “Thirty per cent of our book of business is group mandatory critical illness insurance,” Mongia says. 

Regarding the product’s value proposition, simplicity is key. “We’ve excluded from our contracts non-consumer friendly language that our competitors typically put in place. One doesn’t have to sit and read medical language. It makes our product easy for the employees to understand how they will get paid.”   

Because the language in the product is less restrictive and claims are more easily paid as a result, Bob Mongia explains that Allstate manages risk through scale, “by having many policies in place.” 

He declined to disclose the amount of Allstate’s in force in Canada. On its website, Allstate Benefits says it offers its critical illness and accident products to more than 50,000 groups and 4.2 million insured employees in the United States and Canada. 

Mongia says he acquires the volume acceptable to Allstate on a group-by-group basis. “When we look at a group, we want to make sure that we will get good participation. With the advisor or the broker, we make sure to understand the needs of the group, and how the company will be supportive in the process, e.g. by educating their employees. Otherwise, we’ll get a few policies and it’s not a good risk,” he explains.

When these conditions are met, Mongia says that one in three employees to whom he presents the optional benefit will buy it. Allstate Benefits has groups ranging from small businesses with three employees to large companies with 100,000 employees, including some Walmart stores.