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Spring 2002
Group Life Committee Review
By Joe Malone
Munich American ReHere is an overview of two of the workshops, one that focused on Critical Illness Insurance presented by the Group Life Committee.
U.S. Marketplace for Critical Illness Insurance
Daniel R. Pisetsky, Managing Director of US Living Benefits LLC, moderated a distinguished panel of experts who have been involved in the U.S. Critical Illness Insurance (CII) marketplace. Dan began with an overview of the CII product and trends in the U.S. marketplace that are impacting CII. The CII product has been brought to the market in three forms: as an Acceleration Benefit Rider on a Life Insurance Policy, as an Additional Benefit Rider on a Life Insurance Policy and as a stand alone Health Product.
Today's United States CII Marketplace is primarily an Individual Life Arena. Only a few Group Life Insurers are active in the U.S. CII Marketplace today, and their CII products provide only Accelerated Benefits. In the Group Health Arena, there are 18 U.S. Companies currently writing Cancer Only Policies, which is a narrowly focused form of CII. It is anticipated that sales of the CII product will accelerate in the U.S. worksite marketplace. Consumer awareness and education will help fuel the growth of Critical Illness Insurance in the U.S. market.
George F. Bashaw, Jr., Managing Director of Xcorp, shared his experiences in marketing Critical Illness products. He has been working since 1997 to bring CI Insurance to Corporate America. He has recently had some success in implementing this product at Fortune 1000 companies, his target market. Distribution of the CII product is a major issue in the U.S.
Marcus Mears, Senior Vice President and Chief Marketing Officer for Kanawha Insurance Company, discussed the advantages of using a Group Insurance chassis for a CII product. A Group chassis allows for pricing and underwriting flexibility. In the worksite marketplace, a Core Benefit of $5,000 - $10,000 can be offered on an Employer Paid, Guaranteed Issue basis. Employees can purchase higher benefit levels on either a Contingent GI (2 Questions) basis, or on a Simplified Issue (more questions) basis.
There are a number of key issues that need to be addressed in order for this product to grow. In the regulatory environment, there are tax issues and compliance issues. There is a need for standardization of product definitions and both the producers and consumers need to be educated about the CII product. Dan Pisetsky has been instrumental in bringing together seven insurance companies and three major reinsurers to establish a National Association for Critical Illness Insurance. This new association will be a forum to focus on these key issues and will be a valuable resource to support the future growth and maturation of this product.
Underwriting Practices for Worksite Marketers
Patrick T. Leary, Manager, Distribution Research for LIMRA International, discussed current trends in worksite marketing and reviewed the results of LIMRA's just completed survey of "Voluntary Product Underwriting Practices." Pat noted that worksite sales of Voluntary Products are up 8% so far in 2002. Employers continue to shift more of the responsibility for benefits selection to the employees. There seems to be a trend among employers to unbundle coverages, facilitated in part by advances in telephony and internet technology. This makes enrollment and administration more efficient. However, Group Insurers in general have been slow to implement these new technologies, especially when compared to financial services companies that provide 401K Plans and other retirement plans.
LIMRA' s survey includes responses from 38 carriers that are marketing Voluntary Life and Disability products on a Group or Individual basis. These worksite carriers underwrite Life, STD and LTD Products using either a Guaranteed Issue, Simplified Issue or Full Medical approach. LIMRA asked how "Guaranteed" is a Guaranteed Issue Product? While almost 45% of insurers have no underwriting requirements for their GI Product, 33% of insurers ask one or two health-related questions. Another interesting survey question is: How are employees not participating in the original GI enrollment handled when later seeking coverage? In general, approximately 50% of the insurers require Full Medical Underwriting and approximately 50% of insurers require proof of good health on a simplified form. Transfer/Takeover Practices were also addressed by the LIMRA survey. Somewhat surprising, when an employer group changes insurer, 50% of insurers allow previously non-covered employees to enroll for Life or Disability coverage up to the Guaranteed Issue amount.
Mike Harper, Vice President of Voluntary Benefits Underwriting for Colonial Life & Accident Insurance Company, shared with us his perspectives on the worksite marketing opportunity. Mike is a veteran of the worksite marketing battlefield, and in his humorous and blunt style, he told us what life is really like in the worksite underwriting trenches. AFLAC has the largest market share today, with a focus on accident and cancer policies. Colonial Life & Accident has the next largest market position in the worksite arena.
Some of Mike's basic tenants in Underwriting Voluntary Products are:
Application design is critical
The underwriting process must be simple and transparent to the customer
Underwriting drives corporate profitability
Partner with your actuaries and claims managers to leverage profitability
There are ways to write most business profitably
There are many challenges for Voluntary Benefits carriers, whether they use a Group Billing approach or an Individual Billing approach. Individual Billing is hard to do well, and systems costs are enormous. Economies of scale are a must. Persistency can be a problem. In order to survive in the Voluntary Market, underwriters must have both Group and Individual Underwriting expertise.
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