Critical Illness

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Critical Illness

• A Product for Living

Presented to NALC by Alex Zeid, FMSI May 2001
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Critical Illness

• A Product for Living

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State of Affairs

• Companies looking for new products, markets and
  distribution systems
• Highly competitive marketplace
• Flat sales for life and disability insurance
• Need product differential

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History

• 1983 - Created product in South Africa
• 1987 - Introduced into United Kingdom
• 1995 - 70 U.K. Co.s sold over 35 Billion
• 1990 - Entered in Australia.
• Today 31 out of 33 Australian companies offer CI
  policies.

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History (continued)

• Japan sold 500,000 policies in first 10 months
• Today Critical Illness products are sold in
• South Africa
• UK
• Japan
• Canada
• Australia

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Outline

• What is Critical Illness (CI)
• Why do you need CI insurance
• Who should have CI insurance
• How to implement CI insurance

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What is Critical Illness Insurance?

• Living Benefit
• Lump sum payment upon diagnosis of
• Cancer (Life Threatening)
• Heart Attack
• Stroke
• Renal Failure
• Major Organ Transplant

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Statistics

• 40 will develop Cancer
• 50 of those will survive at least 3 years
• 1.5 million will suffer Heart Attack
• 1 million will survive at least 3 years
• 4 million Stroke victims are alive today
• Critical Illness Survival Rate
• 2 times more likely to Live than Die.

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Why do you need CI?

• Advancement of Medicine
• Proliferation of HMO enrollments
• In-home care
• Lost income of claimant as well as caregiver
• Transportation expenses
• Home and car modifications

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Why do you need CI?

• Elimination of infectious diseases as major cause
  of death
• Life expectancy increases from lifestyle changes
  and medical advances
• Americans incur a critical illness every 8
  seconds
• Americans are surviving critical illness

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Cost of SurvivalStroke Victim

• Home Care hour 28.50 Day 228
• Wheelchair 3,000 - 11,000
• Entrance Ramp 50/sq. ft.
• Exterior Lift 4,500
• Bathroom 8,000 - 15,000
• Doors (widened) 800/unit
• Electric Front Door 2,200

• Stairs 3,500-
  13,000
• Custom Van 50,000
• Car
• Electric Lift 2,650
• Auto door 920
• Hand Controls 1,650
• Power Seat Base 2,100
• Raised Roof 3,575
• Raised Doors 1,900

Total
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CI policies are not like

• Life Insurance
• Terminal Illness Coverage
• Disability Insurance
• Cancer or Specific Disease Insurance
• Long Term Care
• Health

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Who needs CI coverage?

• Single Persons
• Homemakers
• Self-Employed
• Special Occupations
• Limited Health Insurance
• Mortgage Protection
• Limits on Disability Income

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Policy Details

• Tight definitions
• Simplified Underwriting
• Group or Individual
• Affordability

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Policy Description

• Policy provides for payment of a lump sum benefit
  payable on the diagnosis of a contractually
  specified condition.
• Specified conditions include life threatening
  cancer (invasive), heart attack, strokes,
  coronary artery bypass surgery, kidney failure
  and major organ transplant
• Contract terminates with payment of lump sum

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Benefit Pattern

• Level for life
• Reduce at age 65 or 70
• Terminate between ages 65 and 75
• Partial benefits for some conditions

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Premium Pattern

• Level for life
• Level premiums to age 65 or 70
• Level for 10 years then annual increases

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Other Options

• Nominal death benefit
• Return of premium
• Conversion to long term care at 65
• Waiver of premium on disability
• Guaranteed insurability

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Type of Critical Illness Policies

• Stand alone health policy or stand alone benefit
  attached to a life policy
• Accelerated benefit rider attached to a life
  insurance policy

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Contract

• Use clear definitions of the event being insured
  against
• Anti-selection
• Waiting period
• Survival period

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Renewability

• Guaranteed Renewable
• Non cancelable

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Reinsurance

• Absolute
• Quota share
• Assume some risk (5 or 10) Results in lower
  net cost

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Other Design Features

• Issue ages 20 - 64
• Non tobacco and tobacco rates
• Rates vary by state
• May be issued substandard
• Size range from 25,000 to 5,000,000
• Policy fee usually used

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Implementation

• Payroll deduction
• Worksite marketing

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Fills the Gaps - Provides Living Economic Security

• Reduce debt
• Pay off loans
• Home modifications
• Finance new career
• Medical expenses not covered by insurance
• Take a final vacation
• Buy out of ownership in business situation

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Other Uses for Critical Illness

• Travel to consult specialists
• Housekeeping expenses
• Home and auto modifications
• Specialized equipment
• Foregone retirement savings
• Medical deductibles and co-pays
• Child care
• Experimental treatment
• Special dietary needs
• Others

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Regulatory Concerns

• Health or life filing
• Problems but they can be overcome
• Few states will never approve

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Reasons to Market

• Successful in other countries
• Easy to describe and understand
• Tremendous growth opportunity
• Opportunity to lead
• Larger profit margins than life insurance
• Satisfies unmet needs of marketplace

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Where is the Market

• Very large, includes
• 1. Family
• 2. Singles with or without dependents
• 3. Self-employed
• 4. Creditor
• 5. Business.
• Buy/Sell
• Key person

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Who is Buying

• 50/50 gender split compared to 75/25 for life
• Lower income
• Singles employed as blue collared, unskilled or
  semi-skilled

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Distribution

• Individual agent
• Career agent
• Broker
• Direct response
• Worksite marketing

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Price

• Expensive for policyholder
• More than life insurance
• Not much competition
• Priced with adequate profit margins

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Underwriting

• Different than life or health insurance
• Incidence not mortality or morbidity

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Is it for your company?

• In our opinion the answer is MAYBE.
• Could improve sales/membership and bottom line
• Depends on your culture and willingness to take
  on risk and be a leader
• Do not do it alone
• Enter into a strategic alliance
• Go slow, test market the product

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Critical Illness

• A Product for Living