For a benefit that the majority of employees claim not to know exists, critical illness insurance is doing quite well. A recent MetLife survey on CI revealed that even among the 28% of employee respondents who say they have heard of CI, most have it confused with group health, disability or a government-sponsored program. Nonetheless, aggregate data on 2009 sales from LIMRA, Gen Re and the National Association for Critical Illness Insurance show 38 direct writers of CI reporting a total of nearly $156 million in annualized premium.
"We've seen increased sales in critical illness in 2010 and I think we'll see even more in 2011," says Brad Ridnour, a regional sales vice president with Trustmark Voluntary Benefit Solutions. He credits the growth of CI in part to its broad coverage appeal and the need to fill mounting coverage gaps as plan sponsors employ high-deductible health insurance plans.
Set for growth
This was also a growth year for CI plans at Guardian. "We, and most carriers, saw from a percentage standpoint a pretty healthy growth in critical illness," says Barry Petruzzi, Guardian's second vice president for group insurance products.
Petruzzi says carriers are "still very bullish" about the product for 2011 as well. "I think next year people will start taking more overt actions on their medical plans and I think that's where we're going to be able to come in and show the value of critical illness and why it would be a great complement," he says.
After being in the CI business for more than a decade, Joe Wieser joined AlwaysCare Benefits as vice president of product development and enrollment services earlier this year. He is responsible for AlwaysCare's new group CI product. Wieser predicts that brokers' desire to diversify and expand revenue streams in the wake of health care reform, coupled with innovative products on the market, has CI "set to explode next year from the standpoint that it will be one of the offerings that is out on the table and front-and-center."
Communication hurdle
Although Wieser expects "even more explosive growth next year with the product," that doesn't exempt it from a need for more consumer education. The anecdotal evidence Wieser found from talking about the benefit with his own friends and family validates the MetLife survey's findings that people are often confused about CI. "Even though sales have been growing significantly I still feel that there's a tremendous gap in awareness out there in the market," he says.
In a white paper accompanying MetLife's CI survey, "Critical Times Require Critical Solutions," the carrier explains how 75% of survey respondents who don't own or have never heard of CI find the concept appealing once features of the product are explained.
One of the first questions Petruzzi gets from customers on the CI product is from employees thinking critical illnesses are already covered under their major medical plans. Petruzzi explains that while a lot of direct costs are covered for an illness, there are still deductibles and out-of-pocket costs that are often hidden. "That's what people really need to understand about critical illness costs," he says. "Oftentimes it's the other costs that come into play," such as child care costs, time off work, travel expenses and medications or alternative treatments that aren't covered by a major medical plan. "Critical illness insurance is a great way to get paid and use that money any way you want to cover a lot of those hidden costs that people don't typically think about."
Part of developing an effective communication strategy for CI is the ability to educate employees on what the benefit is and what it covers, adds Ridnour. Because people forget what they've read, they're going to take another look at their CI policy after they've been diagnosed with an illness, Ridnour points out. Therefore, it's important to have a policy that is "simple to understand and simple for people to deal with."
Petruzzi says the industry needs to hold itself accountable for the sizeable knowledge gap on CI. "I think there still is a fair amount of a lack of knowledge of what exactly the benefit is," he says. "Some of that is on us, the insurance companies, to get out and educate - which I think we do pretty well, but it's a constant effort."
Plan features
As CI plans evolve, the communication effort must evolve as well to take advantage of the new features. AlwaysCare covers many of the standard illnesses - heart attack, cancer, stroke, major organ transplant and renal failure - under its CI plan, as well as some newer features such as additional occurrence and recurrence benefits and a wellness benefit that pays for a yearly screening test.
While most group CI plans have an issue age premium, AlwaysCare applies an attained age premium rate to its plans. According to Wieser, locking a premium in for life when the policy is purchased can lead to overcharging. For example, for a policy bought at age 35 the carrier must factor in the fact that the person will likely be keeping it for 10 years or more. AlwaysCare's attained age basis allows the policyholder to pay a premium within their age band. "What we've done is applied the true cost of critical illness insurance at the age you are currently," says Wieser. "As you age, the premium goes up based on age."
There are pros and cons to such a plan structure, Wieser says, but he feels the ability to offer an affordable policy trumps any negative aspects of the attained age arrangement.
At Guardian, the CI product has evolved to include an optional hospital admission rider when a policy holder is admitted to the hospital for something that is not one of the standard critical illnesses. Additionally, Guardian has enhanced the portability of the product so that employees can take their coverage with them up to age 70.
The biggest change, however, has been the increased interest in employer-paid CI benefits. "We thought we were going to sell more employee-pay [policies] and we're actually selling a fair amount of employer-pay," says Petruzzi.
Guardian has employer groups as small as 40 to 50 employees "very interested" it its CI product. To contend with the increased interest in group CI, "we made some adjustments to our plan, such as removing the preexisting condition clause on any of our CI policies offered to an employer," says Petruzzi.
Employers that are moving to a CDHP to save costs may use some of the money they're saving to buy a CI policy for employees. Because such policies are often used in conjunction with an HSA, "We've been careful to have flexibility that our plan can be offered in a way that it's HSA-compliant," Petruzzi explains. "It doesn't put the employee at risk at all."
Broker perspective
Combining a CI plan with a CDHP is a strategy being used by more brokers to keep premium levels at the lowest possible levels. At AlwaysCare, Wieser spoke with a broker recently who was lamenting having to present his clients with medical rate increases at 20% or above this year. "There's no better way to offset some of those costs than by bringing in a voluntary offering like critical illness to help cover some of those holes," says Weiser. "I think brokers are starting to come around a bit more but I still think it's very virgin territory for brokers."
For those new to CI, three of the most important aspects to keep in mind about the benefit are making sure employers and their employees understand "under what circumstances rates can be changed, under what circumstances will benefits be paid or not paid, and under what circumstances can benefits be reduced or not reduced," says Trustmark's Ridnour.
When it comes to CI insurance it's important to keep in mind the difference between marketing and sales, says Wieser. The marketing should be done to the employer. "I hate to use the word 'gap filler,' but it really helps fill the holes that are maybe left behind with the major medical plan," he says. "The fact of the matter is that no medical plan pays 100% of the medical costs. So it's not a matter of de-emphasizing the medical plan as much as it is this: You have this affordable product with critical illness that can help offset some of the holes that the medical plan might have."
In Petruzzi's experience with brokers through Guardian, "it's very selective in terms of who's interested in learning about new benefits and who is so taken up with the things they're doing right now - responding to health care reform and all the other things - that it's difficult at times to get producers to buy into a different type of coverage."
He expects that attitude to recede, however, as employers look for help integrating their benefit plans with national health care changes. "I think we're all pretty excited about where it can go," he says.
"Group benefits brokers who advise on your typical benefits, I think there are a subset of those who are looking for what's next. It's just their nature. They are interested in it, but there's a group out there that's focused on more traditional benefits. It's getting to them that's the next step."
