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The Marketplace for Critical Illness Coverage

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The Marketplace for Critical Illness Coverage * August 2004 Presented by : Jerry Jacobs, CLU 5416 Yale Street Metairie, Louisiana 70003 Ph#(504)888-2242 Fax#(504)889 ... – PowerPoint PPT presentation

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Title: The Marketplace for Critical Illness Coverage


1
1
The Marketplace for Critical Illness Coverage
August 2004
Presented by Jerry Jacobs, CLU 5416 Yale
Street Metairie, Louisiana 70003 Ph(504)888-2242
Fax(504)889-1753 Email jerry_in_metairie_at_m
sn.com

2
AGENDA
  • Introduction
  • What is Critical Illness Insurance?
  • U.S. Marketplace Trends
  • Need for Critical Illness Protection
  • Product Design
  • Marketing Applications
  • Global Perspective
  • U.S. Critical Illness Marketplace
  • Why Sell C.I.I.
  • QA/Discussion Open Forum Issues/Concerns

3
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
4
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.

5
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.

6
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.

7
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.

8
World Growth
  • Concept developed by Marius Barnard
  • Introduced South Africa in 1980s
  • United Kingdom
  • Japan
  • Continental Europe
  • Australia
  • Canada
  • Ireland
  • United States

9
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)

10
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

11
Types of Critical Illnesses
  • Loss of use of two or more limbs
  • Multiple Sclerosis
  • Muscular Dystrophy
  • Parkinsons Disease
  • Rheumatoid Arthritis (before age 65)
  • Total Permanent Disability (before age 65)
  • Benign Brain Tumor
  • Diabetes

12
Illnesses Types of Critical
  • Emphysema (before age 65)
  • Heart Valve Surgery
  • Severe Burns
  • Terminal Illness

13
U.S. Marketplace Trends
  • Medical technology is keeping people alive
    longer
  • The concern today is not dying too soon its
    living long

14
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

15
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

16
(No Transcript)
17
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
18
Why C.I. Coverage?
  • Probability of surviving C.I. before age 65 is
    almost twice that of dying
  • Costs associated with C.I. are not
    covered by traditional insurance

19
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)

20
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.

21
If you survive a critical illness, what will you
do?
  • Disability Insurance pays a percentage of the
    sufferers
  • 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.

22
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

23
Essentials
  • Essential ingredient of a life insurance product
    probability
  • of death (qx)

Life Insurance Product
  • Investment
  • Expenses
  • (qx)

24
Essentials
  • Essential ingredient of a C.I. insurance product
    probability of
  • diagnosis of a critical illness (ix)

Critical Illness Product
  • Investment
  • Expenses
  • (ix)

25
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)

26
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.

27
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.

28
Product Design Options
  • Premium Guarantees
  • Acceleration Amount
  • Pre-Existing Conditions
  • Maximum Age
  • Maximum Face Amounts
  • Reduced Amounts

29
Family/Individual Perspective
  • Replace reduced earnings
  • Pay off personal debts
  • Cash for medical treatment or associated
    expenses
  • Education

30
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

31
C.I.I. Product
Critical Illness Insurance is Flexible
  • Life
  • Health
  • Disability
  • Other products

32
C.I.I. Global Perspective
  • South Africa
  • Concept Marius Bernard
  • 1983 introduced Abbey Life

33
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
34
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
35
C.I.I. Global Perspective
  • Developing Asian Markets
  • 1985 Singapore
  • 1988 Hong Kong, Malaysia
  • 1990 Taiwan, Thailand
  • 1992 Indonesia

36
Total Dread Disease Policies
1997 Net Premiums written by U.S. Companies
N 5,161,545,733
37
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 life- sustaining organ transplant 13
Accelerated Benefits to beneficiaries when insured is terminally ill 7
Accelerated Benefits to insured when insured is terminally ill 11
Accelerated Benefits to owners upon diagnosis of specific critical illness 12
38
United States C.I. Marketplace

Group Health Arena
Product Type (advance payment of death benefit) U.S. Companies
Accelerated Benefits for life- sustaining organ transplant 5
Accelerated Benefits to beneficiary when insured is terminally ill 8
Accelerated Benefits to insured when insured is terminally ill 37
Accelerated Benefits to owner when insured is terminally ill 13

39
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

40
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

41
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

42
Open Forum Issues/Concerns
Now ask yourself the question Is there a market
for C.I.I.?
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