Stand-alone, acceleration and riders are the 3 critical illness insurance designs that prevail in the United States market. Here is a recap, and also a look at what lies ahead for this emerging and varied product line.
Stand-alone CI, followed by accelerated CI in a life insurance policy, are the 2 main CIs offered by the majority of carriers. Acceleration CIs pay either 100% or a lesser percentage of the face amount. The CI riders, meanwhile, may be added to life, disability, and mini-medical policies.
The major CI distribution channels continue to be in the worksite, followed by individual and group sales. In 2007, for instance, over 80% of CI sales involved worksite products. The U.S. is the only country that dominates the market for worksite CI sales.
Life-threatening cancer, heart and stroke are still the 3 major conditions covered by most CI contracts. A variety of CI products also cover some or all of the following conditions: kidney failure, organ transplant and partial payments for cancer in situ, angioplasty, advanced Alzheimer's and loss of independent living (triggered by 2 of 6 activities of daily living).
New CI product generations include features for multiple payouts for an additional occurrence, recurrence or have grouped conditions into categories, i.e., cancer, heart disease and other conditions to allow for multiple payout scenarios.
A catalyst for CI worksite sales may be the high cost of healthcare coverage as evidenced by growing interest in health savings account programs and high-deductible health plans. CI is also sold as gap protection for individual disability, with CI amounts ranging from $50,000 to $500,000; here, the CI serves as additional coverage to the disability insurance and/or as liquidity protection for catastrophic medical events.
As the CI market continues to evolve in the U.S., several major issues will need to be addressed. These include:
CI pricing: Current worksite CI products are lapse-supported. A 2007 survey by General Re and National Association for Critical Illness Insurance reported that first-year lapse rates averaged more than 20% for individual and worksite products; in year 2, these rates dropped to 15%, and in years 3-5, the average was over 10%.
These high lapse rates indicate that worksite products may not be priced for persistency and portability. Although worksite CI carriers may offer portability options, consumers typically do not opt to retain these policies when leaving the job or retiring. If future worksite CI products are designed for portability and consumer retention, this may impact future actuarial pricing assumptions for carriers.
