Transcript Document

The Marketplace for Critical Illness Coverage
1
August 2004
Presented by :
Jerry Jacobs, CLU
5416 Yale Street
Metairie, Louisiana 70003
Ph#(504)888-2242
Fax#(504)889-1753
Email: [email protected]
Think Outside
The Box!!!
AGENDA
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Introduction
What is Critical Illness
Insurance?
U.S. Marketplace Trends
Need for Critical Illness
Protection
Product Design
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Marketing Applications
Global Perspective
U.S. Critical Illness
Marketplace
Why Sell C.I.I.
Q&A/Discussion – Open
Forum – Issues/Concerns
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
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.
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.
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.
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.
World Growth
 Concept developed by Marius Barnard
 Introduced South Africa in 1980s
• United Kingdom
• Japan
• Continental Europe
• Australia
• Canada
• Ireland
• United States
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)
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
Types of Critical Illnesses
 Loss of use of two or more limbs
 Multiple Sclerosis
 Muscular Dystrophy
 Parkinson’s Disease
 Rheumatoid Arthritis (before age 65)
 Total Permanent Disability (before age 65)
 Benign Brain Tumor
 Diabetes
Illnesses Types of Critical
 Emphysema (before age 65)
 Heart Valve Surgery
 Severe Burns
 Terminal Illness
U.S. Marketplace Trends

Medical technology is keeping people alive longer

The concern today is not dying too soon – it’s living
long
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
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
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
Why C.I. Coverage?
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Probability of surviving C.I. before age 65 is almost twice
that of dying
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Costs associated with C.I. are not covered by traditional
insurance
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)
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.
If you survive a critical illness, what
will you do?
 Disability Insurance – pays a percentage of the sufferer’s
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.
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
Essentials
 Essential ingredient of a life insurance product = probability
of death (qx)
Life Insurance Product
• Investment
• Expenses
• (qx)
Essentials
 Essential ingredient of a C.I. insurance product = probability of
diagnosis of a critical illness (ix)
Critical Illness Product
 Investment
 Expenses
 (ix)
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)
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.
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.
Product Design Options
 Premium Guarantees
 Acceleration Amount
 Pre-Existing Conditions
 Maximum Age
 Maximum Face Amounts
 Reduced Amounts
Family/Individual Perspective
 Replace reduced earnings
 Pay off personal debts
 Cash for medical treatment or associated expenses
 Education
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
C.I.I. Product
Critical Illness Insurance is Flexible
 Life
 Health
 Disability
 Other products
C.I.I. Global Perspective
 South Africa
• Concept – Marius Bernard
• 1983 – introduced – Abbey Life
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
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
C.I.I. Global Perspective
 Developing Asian Markets
• 1985 Singapore
• 1988 Hong Kong, Malaysia
• 1990 Taiwan, Thailand
• 1992 Indonesia
Total Dread Disease Policies
1997 Net Premiums written by U.S. Companies
N = $5,161,545,733
United States C.I. Marketplace
Individual Life Arena
Product Type
(advance payment of death benefit)
U.S. Companies
 Accelerated
Benefits
38
 Accelerated
Benefit Riders
72
 Accelerated
Benefits for lifesustaining organ transplant
13
 Accelerated
7
 Accelerated
11
 Accelerated
12
Benefits to beneficiaries
when insured is terminally ill
Benefits to insured when
insured is terminally ill
Benefits to owners upon
diagnosis of specific critical illness
United States C.I. Marketplace
Group Health Arena
Product Type
(advance payment of death benefit)
Benefits for lifesustaining organ transplant
U.S. Companies
 Accelerated
5
 Accelerated
8
 Accelerated
37
 Accelerated
13
Benefits to beneficiary
when insured is terminally ill
Benefits to insured when
insured is terminally ill
Benefits to owner when
insured is terminally ill
Why Sell C.I.I.?
 Insurance
Company
• Replace declining life sales
• Global sales success
• Fits into health, disability arenas
• Distribution channels
• Emphasis on living benefits..demographics
• Potential higher return on capital
• Leverage distribution
• GROWTHS$
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$
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
Open Forum – Issues/Concerns
Now ask yourself the question:
Is there a market for C.I.I.?