Critical Illness Insurance: What Changes Should Insurers Make?
Critical illness insurance pays out a lump sum that you can use at your discretion if you are diagnosed with one illness on a list of critical illnesses, including cancer, stroke, and multiple sclerosis.
But, in a recent article from the Financial Post, Mark Halpern of illnessPROTECTION.com reported that fewer than 25% of advisors have sold a living benefits policy (including critical illness) in Canada.
So why hasn’t critical illness insurance caught on in Canada? We asked some of the leading living benefits insurance experts in Canada to weigh in with their thoughts and tell us what changes insurance companies need to make if they want to help advisors sell more critical illness policies.
How Advisors and Insurance Companies Can Do Better
Ami Maishlish, president and CEO of CompuOffice Software Inc. and a big believer in critical illness insurance, is very concerned about those clients whose advisors who either confuse critical illness insurance with disability insurance or classify it as a want rather than a need for their clients.
“My concern is highest for the clients of advisors who routinely dismiss CI coverage and refer to it as an expensive ‘want’ rather than a real ‘need’ and/or confuse CI insurance with disability insurance. In my view, such so-called “advisors” are engaged in an anti consumer interest form of professional malpractice.”
He lists ten things that could be contributing to Canadian advisors’ ability to properly sell critical illness insurance, including a lack of knowledge, a lack of appreciation and understanding of the need, a focus on commissions instead of the best interest of their clients, woefully lacking education standards for advisors, difficulty in arriving at fair comparisons among the offerings, a lack of critical illness advertising, a greater number of easier to sell life insurance products, the cost of critical illness, advisors wanting an easier path to commissions, and a lower likelihood of filing a claim during the policy period, along with an increased likelihood for the denial of claims.
In response to these problems, he also hopes that insurance companies respond by doing any or all of the following:
a. Regulators, associations, MGAs, and insurance companies should provide at last sufficient education to insurance advisors to appreciate the need for CI coverage and to encourage, or even require, advisors to bring up the subject (and if they don’t have sufficient knowledge, or are not comfortable with making recommendations, to refer clients to advisors who are knowledgeable, have the necessary research tools and are comfortable with making recommendations of CI).
b. Adjust the commission scales for CI to more closely reflect the amount of work and level of knowledge required of the advisor. Also, allow some form of compensation to the advisor for applications written for cases that appear to be acceptable but are declined due to information that was previously unknown to the applicant and agent during the course of underwriting.
c. Provide easier and more accessible disclosure of the products and detail to advisors as well as consumers. This includes policy contract wording disclosure pre-sale as well as contracts in more humanly understandable language.
d. Provide comparative, readily accessible stats on the relative probability of a death claim under term and permanent life insurance versus term and permanent CI insurance.
e. Perform all the underwriting functions to determine the acceptability of the risk on the policyholder pre-issue rather than subsequent-to-policy issue.
Above all, Maishlish sees the main problem that has lead to a lack of critical illness sales is simply the lack of knowledge that he mentioned as the first contribution in his list of ten. There’s also the last factor he listed, which was the increased likelihood of a denial of claim.
Higher Claim Denials
This increased likelihood of claim denial with critical illness policies is supported by Bill Solomon, consulting actuary and fellow at the Canadian Institute of Actuaries, who wrote in an article on Advisor.ca that CI has the highest rate of denial among all insurance products.
We asked Tim Landry, a living benefits consultant for QTR Solutions, to address this higher than average denial rate. We asked him what advisors can do to reduce the rate of denial among their critical illness policyholders and why more critical illness policies are denied than life insurance policies.
Here’s what he had to say: ”The first way to reduce declines is by completing the ‘Pre-Qualifying’ Questions. The nature of the product — paying on diagnosis and not on death — means we need to be at least as sure as we can be that our clients will pass the qualifying criteria.”
His recommendation is to have the advisor submit a preliminary inquiry on the client’s behalf. A preliminary inquiry allows the advisor to give the insurance company the client’s age and health situation without disclosing their name, which will give the advisor a better idea as to whether their client is eligible to submit a claim.
This is important because a decline can severely limit a client’s future insurability and a preliminary inquiry can help avoid this situation and give the advisor an idea whether their client should look for options that are easier to qualify for, such as guaranteed or simplified-issue policies.
He also recommends that advisors sell these policies in stages to reduce their client’s barrier for entry. Since cancer makes up 70% of all critical illness policies, they should try to qualify their client for Cancer Only coverage. If they would be denied for that, then they won’t qualify for a traditional critical illness policy anyway. If they get accepted, then Landry recommends their advisor upgrade them to a small critical illness policy covering three to four conditions and then finally to more complete coverage.
Landry also has a warning for advisors regarding family health history as it relates to critical illness policies: ”If your client has a family history of — for example — MS, he/she should have no problem qualifying for a policy which does not cover MS. However, he/she will have significant problems qualifying for a policy that does cover it,” he says. “If a client tells you that she/he wants a policy which covers — for example — aplastic anemia because several family members have it – please do not waste your time. That is like insuring a house which is already on fire.”
The reason most critical illness claims are denied is because the risk is someone gets diagnosed with one of the covered illnesses and does not die. Landry says you can’t do much about the high percentage of declines as an advisor. All you can do is pre-qualify your clients and offer a smaller policy with fewer covered conditions initially.
The Benchmark Misconception
The reason there are so many declines could also be due to the benchmark being used.
The benchmark is the minimum requirement insurance companies use to define a diagnosis. It’s supposed to be a standardized definition across the Canadian insurance industry, but Sean Long, a living benefits expert and insurance consultant who helped introduce critical illness in Canada, says it may not be standardized at all.
“It took some companies two to three years to establish a benchmark because it’s more profitable not to have a standardized definition and I’ve said to advisors that if they think the benchmark is standardized, why is the wording different on every single policy claim form?” says Long.
If you’re a client with a weak policy that may be easily declined, Long says it might be because of your minimum definition and advises clients to pay more for a more comprehensive policy with a better chance of paying out.
“Basically, you get what you pay for,” says Long. “The companies I looked at were Great-West Life, Empire and Canada Life. They really reached out and did a lot of research on what the minimum requirement actually is.”
Long always recommends that clients go through the claim form to see what the benchmark is and see if the company may engage in post-claim underwriting after diagnosis, rendering clients in-eligible in some cases. “Also, disclose everything,” he says. “A lot of brokers actually have never gone through the claim for with their client, which is pretty shocking and many insurance companies won’t send out claim forms if you ask for them.”
So as a client, you should shoot for a policy with a standard definition way above the minimum benchmark.
“Beware of cheap premiums and face amounts. You may save some money, but it will be harder to get a claim to pay out when you need it,” says Long.
He also says that you must get your back up for three words: any and all. “Any and all means just what it says,” says Long. “For example, you must disclose any and all doctor’s visits and medication, even the seemingly inconsequential ones.”
He recommends brokers go over policies with their clients thoroughly so that clients don’t get tripped up.