Less than a month after the release of presumably clearer, more concise critical illness definitions, the industry is providing feedback — and it’s not all positive.
Since its launch about a decade ago, critical illness (CI) insurance promised Canadians a lump sum if they were stricken with a life-threatening medical problem, such as cancer or a stroke. While sales were brisk at first, they starting to decline and by the first quarter of this year, the industry reported a -5% change in sales of new individual CI policies.
It’s these continually falling numbers that sparked debate across the insurance and advisory community regarding the reasons why CI can’t sell. For many carriers and providers the need to standardize definitions was crucial — the culmination of their work was released on April 29 and resulted in a non-mandated, but highly accentuated set of standardized definitions which, in theory, will provide clients more accessibility to the policies, by enabling advisors to more easily compare policies.
“I really wonder about our industry sometimes,” remarks Tim Landry. As a veteran agent who started at Crown Life in 1969, Landry just “cannot understand why carriers profess to not know what is happening.” His comments are in relation to the concern that prompted carriers to examine the obstacles for advisors selling CI products. Currently, there is only 6% penetration of the market for the living benefit product.
“Yes, we may have needed to simplify definitions but was that truly the best idea?” queries Landry. He questions the rationale behind the decision, particularly since the impetus for the change came from overseas. “The U.K. needed standardized definitions because the product is largely sold by banks — not by qualified advisors,” explains Landry. Instead, Landry believes the carriers should have turned their attention to training.
“As an industry, we do a reasonably good job of training advisors in how to sell life insurance — not a bad job for investments — but nothing at all for living benefits. I just do not believe the best solution [to the lack of CI in the market] has been offered. What we need is proper training for advisors.”
The process of standardizing the definitions started two years ago, when the six major CI providers in the country learned that 75% of advisors did not embrace the sale of CI, based on their need to undertake extensive spreadsheet analysis in order to understand, and compare, the numerous variations of CI in the marketplace.
Elizabeth Heise, a living benefits specialist with ABEX Brokers in Calgary, knows first-hand that lack of comprehension about the products barred many advisors from offering them to their clients. “I received comments from some brokers that they avoid selling CI because of the various, hard-to-understand definitions,” she says, adding, “they don’t want to be sued if a claim is not paid.”
Heise continues by saying that the recently launched standardized definitions are “a good thing,” particularly since “competition is based on company service and policy features, rather than underlying definitions.”
Terry Zavitz, a living benefits specialist based in London, Ontario and president of Zavitz Insurance, believes that the complexity of the product is precisely why the advisor needs to be involved. “It’s a complicated contract, has a high premium, tough underwriting process, too many declines or modified policies, along with claim problems,” she said during a presentation at the 5th Annual World Critical Illness Conference in Toronto at the end of April. “But, [living benefits] are an ever-expanding product line, with higher renewals, and, most importantly, there’s a bigger-than-ever need for it.”
Zavitz says while there is a current problem in the industry — a disconnect between what the insurance companies need and what clients can provide — it’s an ideal environment for an advisor to grow in. She suggests brokers can help by:
- knowing the claim;
- educating the client on the fact that the diagnosis is not the claim;
- educating the client and the physician that a functional impact is not the same as a diagnosis;
- and educating themselves on the residual claims that will impact their clients and their business.
Landry agrees, but he believes it comes down to training, not simplified definitions.
“CI is a technology-based product,” he explains. For that reason, definitions are bound to change, as are treatments. Landry believes that’s the reason why many advisors stay away from the product — it’s out of their comfort zone. “Ninety-nine percent of advisors are specialists in one thin line. They may sell outside of that line once in a while, but that line [of products] is really where they are comfortable. We need to teach the agents so that they have a comfort zone [with critical illness]. Definitions are one thing, but teaching agents — so they don’t emphasize on the return-of-premium [clause] because they can’t sell — is another thing.” (Return-of-premium (ROP) is an option that allows clients to get back all the cash they’ve put in after the policy expires, if they never make a claim.)
Originally published on Advisor.ca on May 21, 2008