The Marketplace for Critical Illness Coverage

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The Marketplace for Critical Illness Coverage
August 2004
Presented by Jerry Jacobs, CLU 5416 Yale
Street Metairie, Louisiana 70003 Ph(504)888-2242
Fax[phone] Email jerry_in_metairie_at_m
sn.com

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AGENDA

• Introduction
• What is Critical Illness Insurance?
• U.S. Marketplace Trends
• Need for Critical Illness Protection
• Product Design

• Marketing Applications
• Global Perspective
• U.S. Critical Illness Marketplace
• Why Sell C.I.I.
• QA/Discussion Open Forum Issues/Concerns

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FACTS

• Approximately 1.5 million Americans suffer a
  heart attack each year.
• Of these, 1.1 million survive at least three
  (3) years.
• Over 40 of the population will develop breast,
  prostrate, or some
• form of cancer at some point in their lives.
• The probability of surviving a critical illness
  before age 65 is almost
• twice as great as dying.

Source 1987 Employee Benefits News And Views
Magazine
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What Is Critical Illness Insurance?

• Critical illness insurance (C.I.I.) has
  characteristics of both life insurance and health
  insurance.
• C.I.I. pays a life insurance-type lump sum
  benefit, upon diagnosis of one of a number of
  critical illnesses rather than upon death.

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C.I.I. Coverage

• C.I.I. will pay a lump sum benefit after the
  insured is diagnosed with a critical
  illness. Virtually all products cover the Big
  Three
• Heart Attack
• Stroke
• Life Threatening Cancer
• Nearly 70 of all deaths under age 75 are
  associated with heart disease, stroke and cancer.

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The Big Three

• Heart Attack
  
  
  
  
  

• Death of a portion of the heart
  muscle (myocardium) from a blockage of one or
  more coronary arteries.

• Stroke
• Any acute cerebrovascular accident producing
  permanent neurological impairment resulting in
  at least thirty (30) days of paralysis or other
  measurable neurological deficit.

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The Big Three

• Life Threatening Cancer
• Only those types of cancer shown by the
  presence of a malignancy identified by the
  uncontrolled growth and spread of malignant
  cells and the invasion of tissue that could
  result in death.

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World Growth

• Concept developed by Marius Barnard
• Introduced South Africa in 1980s
• United Kingdom
• Japan
• Continental Europe
• Australia
• Canada
• Ireland
• United States

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Types of Critical Illnesses

• Heart Attack
• Stroke
• Life Threatening Cancer
• Coronary artery (bypass) Surgery
• Angioplasty
• Renal (kidney) Failure
• Major Organ Transplant
• (heart, lung, liver, bone marrow)

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Types of Critical Illnesses

• Alzheimer Disease (before age 65)
• Brain Damage
• Coma
• Loss of Hearing
• Loss of Independent Existence (before age 65)
• Loss of Sight
• Loss of Speech

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Types of Critical Illnesses

• Loss of use of two or more limbs
• Multiple Sclerosis
• Muscular Dystrophy
• Parkinsons Disease
• Rheumatoid Arthritis (before age 65)
• Total Permanent Disability (before age 65)
• Benign Brain Tumor
• Diabetes

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Illnesses Types of Critical

• Emphysema (before age 65)
• Heart Valve Surgery
• Severe Burns
• Terminal Illness

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U.S. Marketplace Trends

• Medical technology is keeping people alive
  longer
• The concern today is not dying too soon its
  living long

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People Living Longer

• 65 year old male can expect to live to age 83
• 65 year old female can expect to live to age 87

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Attitudinal Trends

• Consumers have greater fears than premature
  death, such as
• The cost of health care
• Cost of nursing homes
• Having enough income to retire

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LIFE INSURANCE INDUSTRY TRENDS

• Demographics favor living benefits over death
  benefits
• THE RESULT Individual life sales have
  declined
• 30 over the past ten (10) years.

Source Marketing Edit LIMRA 1997
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Why C.I. Coverage?

• Probability of surviving C.I. before age 65 is
  almost twice that of dying
• Costs associated with C.I. are not
  covered by traditional insurance

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Why C.I. Coverage?

• EXAMPLE Two-thirds of all cancer-related costs
  are indirect,
• non-medical expenses, such as
• Lost income for C.I. Survivor
• Lost income and work time for spouse or care
  giver
• Housekeeping and child care expenses
• Home health care needs
• Home or car modifications
• Non-covered experimental treatments
• Expenses not covered by insurance (including
  co-payments
• and deductibles)

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If you survive a critical illness, what will you
do?

• Life Insurance with rare exception, not
  available while the
• sufferer is alive. Intended for dependents
  or beneficiaries.
• Health Insurance Possible limited benefits
• deductibles/co-pays. May be limited in scope
  of portability if the
• sufferer leaves his/her employment.

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If you survive a critical illness, what will you
do?

• Disability Insurance pays a percentage of the
  sufferers
• monthly income and benefits are dependent
  upon ability to
• work.
• Long Term Care limited to a daily benefit
  available subject
• to a hospital stay or home nursing
  requirements.
• Accumulation Products intended to provide
  supplemental
• retirement income.

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Critical Illness Insurance

• Insured has options
• The money provided by the C.I.I. empowers the
  insured
• to exercise choice.
• C.I.I. is a consumerist product

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Essentials

• Essential ingredient of a life insurance product
  probability
• of death (qx)

Life Insurance Product

• Investment
• Expenses
• (qx)

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Essentials

• Essential ingredient of a C.I. insurance product
  probability of
• diagnosis of a critical illness (ix)

Critical Illness Product

• Investment
• Expenses
• (ix)

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Essentials

• Any life insurance product design can, in
  principle, be
• be duplicated in a corresponding
  C.I.I. product by
• exchanging the key probability of death (qx) for
  the key
• probability of a diagnosis of critical illness
  (ix)

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Basic Types of C.I.I. Coverage

• Acceleration Benefit Rider
• Pays all or a portion (usually 25-100) of the
  life face amount
• upon diagnosis of a critical illness.

• Additional Benefit Rider
• Pays the rider face amount upon diagnosis of a
  critical illness.

• Stand Alone
• A health product which pays a lump-sum benefit
  upon the
• diagnosis of a critical illness.

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Product Design Options

• Covered Diseases
• Definitions must be consistent with incidence
  rates used in
• pricing.

• Waiting Period
• First diagnosis must be made following some
  specified
• time after the issue date of the policy.

• Survival Period
• Built on assumptions that the purpose of C.I.I.
• coverage is to help cover the costs of living
  with a
• critical illness. Example Must survive 30
  days after
• after diagnosis to be eligible for C.I.
  benefit.

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Product Design Options

• Premium Guarantees
• Acceleration Amount
• Pre-Existing Conditions
• Maximum Age
• Maximum Face Amounts
• Reduced Amounts

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Family/Individual Perspective

• Replace reduced earnings
• Pay off personal debts
• Cash for medical treatment or associated
  expenses
• Education

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Business Perspective

• Buy/Sell Agreements
• Provide ill shareholder with benefit
• Enable working shareholders to buy out ill
  shareholder

• Key Person
• Pay off creditors
• Executive perquisite
• Recruit replacement with similar talent

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C.I.I. Product
Critical Illness Insurance is Flexible

• Life
• Health
• Disability
• Other products

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C.I.I. Global Perspective

• South Africa
• Concept Marius Bernard
• 1983 introduced Abbey Life

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C.I.I. Global Perspective

• U.K. Success Story
• 1987 Introduced
• 1993 70 companies sell C.I.
• (12 billion in force in 1995)
• 1997 626,584 new policy sales (33 over 1996)
• Two million policies in force
• C.I. policy sales have increased in each of the
  last six years as
• a percentage of overall individual life sales
  (22 in 1997)
• 83 of sales are mortgage related

Source Financial Times 1998
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C.I.I. Global Perspective

• Australia
• 1990 introduced
• 1997 31 out of 33 Australian Life Companies
  offer C.I.I.

• Japan
• 1993 introduced
• (sold over 500,000 policies in first 10
  months)
• 1994 over two million sold
• 1997 over six million sold covering many more
  medical
• conditions since first introduced

Source Life Insurance Selling 1997
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C.I.I. Global Perspective

• Developing Asian Markets

• 1985 Singapore
• 1988 Hong Kong, Malaysia
• 1990 Taiwan, Thailand
• 1992 Indonesia

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Total Dread Disease Policies
1997 Net Premiums written by U.S. Companies
N 5,161,545,733
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United States C.I. Marketplace

• Individual Life Arena

Product Type (advance payment of death benefit) U.S. Companies
Accelerated Benefits 38
Accelerated Benefit Riders 72
Accelerated Benefits for life- sustaining organ transplant 13
Accelerated Benefits to beneficiaries when insured is terminally ill 7
Accelerated Benefits to insured when insured is terminally ill 11
Accelerated Benefits to owners upon diagnosis of specific critical illness 12
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United States C.I. Marketplace

Group Health Arena
Product Type (advance payment of death benefit) U.S. Companies
Accelerated Benefits for life- sustaining organ transplant 5
Accelerated Benefits to beneficiary when insured is terminally ill 8
Accelerated Benefits to insured when insured is terminally ill 37
Accelerated Benefits to owner when insured is terminally ill 13

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Why Sell C.I.I.?

• Insurance Company
• Replace declining life sales
• Global sales success
• Fits into health, disability arenas
• Distribution channels
• Emphasis on living benefits..demographics
• Potential higher return on capital
• Leverage distribution
• GROWTHS

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Why Sell C.I.I?

• Producer
• Fits marketing organizations (career,
• independent agencies, producer groups)
• Fits market segments
• Living Benefits (ex., LTC)
• Another financial planning tool for client
• Consumer appeal is growing wide acceptance
• GROWTH

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Why Sell C.I.I.?

• Consumer
• Choice
• Flexibility
• Fills gaps for calamitous events
• Concern about living longer vs. mortality
• Related to C.I.I. no matter what economic level
• Asset protection

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Open Forum Issues/Concerns
Now ask yourself the question Is there a market
for C.I.I.?