Insurance: The struggle with CI

Life insurers are revamping their critical illness (CI) insurance product offerings in an effort to bolster sales in a market that remains largely untapped.

However, recent premium hikes and changes to CI definitions have made the products less attractive, so some financial advisors are shying away from recommending CI insurance to their clients.

Quebec City-based Industrial Alliance Insurance and Financial Services Inc. (IA) will introduce a revised suite of CI products this month. The product line’s features and options aim to make CI coverage more affordable for clients.

“There are so many Canadians who don’t own a CI policy,” says Louis-Charles Leclerc, director of insurance products at IA. “So, one of our goals in developing the new CI product is to develop new market opportunities.”

One new feature IA is introducing is a decreasing face amount option for mortgage owners wherein the CI insurance benefit amount declines over time in conjunction with the balance of the mortgage. The benefit levels out once it reaches 50% of the original amount. The premiums on a policy with that option are approximately 10%-15% lower than for a regular policy, Leclerc says.

“We tackled a new market, which is the mortgage market,” he says. “It makes CI more accessible to all clients.”

IA also is adding more term options to its lineup of CI insurance products, including a new 25-year term. In addition, the company is introducing a new return of premium (ROP) rider, which enables policyholders to get a refund on premiums, if no claim has been made, once the policy has been in force for as few as five years.

Toronto-based Sun Life Financial Inc. also recently added new features to its CI insurance products, including a new ROP option on cancellation or expiry at age 75. A disability waiver, whereby premiums can be waived if the policyholder becomes disabled, is another new feature.

The changes come as sales of CI insurance have been unimpressive throughout most of 2017. Connecticut-based global insurance association LIMRA International Inc. reported that growth of CI insurance in Canada stalled during the first half of 2017 before growing slightly in the third quarter. The number of policies sold in Canada grew by 3% year-to-date as of Sept. 30, 2017, bringing the total number of in-force policies to slightly more than 842,000.

Generating interest

Although sales of CI insurance have been growing at IA, Leclerc says, insurers need to find ways of generating more interest in the product: “It’s still an untapped market.”

Offering lower-cost options is one strategy for attracting more interest, particularly as CI insurance premiums have increased considerably in recent years.

“[Insurers] are jacking [CI] rates up so much that it’s getting to be a costly item,” says Richard Gilbert, president of Mississauga, Ont.-based Megacorp Insurance Agencies Inc.

“Pricing certainly has changed significantly since the product came to market,” adds Richard Cooper, managing partner with Creative Planning Financial Group in Toronto. “And with the prevalence of illnesses that [are] gaining momentum, we’re going to see further upward pressure on pricing for CI.”

The cost of CI coverage deters some clients from purchasing this type of insurance. For other clients, it’s just not a priority, Cooper says: “[CI insurance] is a product that, frankly, has frustrated me over the years, from the perspective that I think it’s something everybody should have. Why aren’t more people buying it?”

Enhanced ROP options are a tool insurers use to sell more CI insurance. A high proportion of these policies are sold with an ROP rider. Although the rider makes the coverage significantly more expensive, ROP provides clients with the comfort of knowing they can get their money back if they don’t make a claim.

“The sales that we see in the industry are still heavily weighted to ROP,” says Leclerc.

Many insurers also have recently introduced “simplified issue” CI policies and more relaxed underwriting requirements to create a faster and easier process for clients to apply for and obtain CI coverage.

The range of medical conditions that CI insurance policies cover also is evolving. Sun Life recently adopted the Canadian Life and Health Insurance Association Inc.’s (CLHIA) CI benchmark definitions – an industrywide set of definitions outlining 26 conditions that CI insurance policies commonly cover, which is voluntary for insurers to adopt. These benchmark definitions aim to standardize the medical conditions that CI insurance policies cover in Canada in order to reduce client confusion caused by carriers defining each illness differently.

Several other major insurers also have adopted the latest version of the definitions, which were released in 2013. IA will be adopting them in January, Leclerc says.

Narrower definitions

For Sun Life and IA, adopting the new definitions means that some of their policies’ definitions will be broadened to cover a wider range of conditions, whereas other definitions will be tightened to reduce the variety of conditions covered.

The shift toward standardized definitions has led to narrower definitions and more exclusions in general, Gilbert says: “[The new benchmarks] have made most of the definitions severe.”

For example, Gilbert notes, certain types of thyroid cancer are excluded under the CLHIA’s definitions, and clients with Parkinson’s disease are required to exhibit symptoms that become progressively worse for at least a year before becoming eligible for a payout.

The result, he says, is more claims being denied, which is making some advisors reluctant to sell the product at all.

“Flat CI insurance sales are a result of agents who have become more knowledgeable,” Gilbert says, “and they’re afraid of these benchmark definitions, for fear that a client is going to have a claim and have it denied.”

Still, when compared with CI insurance products in other countries, the offerings in Canada remain very attractive, says Tim Landry, living benefits consultant with QTR Solutions in Montreal.

In most countries, the premiums and definitions for CI insurance policies are not guaranteed, as they are in Canada, he notes: “We’re the only country with guaranteed CI. The contract, as it exists today, is an excellent contract. But how long will it last?”

IA offers a variable CI insurance product, called Transition Evolution, with premiums that are revised every five years. This month, however, the firm will discontinue sales of this product because of weak sales.

“We feel that the market wasn’t – and still isn’t – ready for an adjustable product,” says Leclerc.

And with new capital requirements and accounting changes making long-term guarantees increasingly costly for insurers to offer, he adds, guaranteed products could disappear.

Until then, more advisors should be talking to their clients about CI, Landry says: “There’s a huge market [for CI], but virtually nobody is selling it.”