For Advisors, It’s ‘Critical’ To Sell Illness Coverage Through The Worksite

By Cyril Tuohy

InsuranceNewsNet

For financial advisors looking to sell more critical illness insurance (CII) coverage, voluntary worksite sales are growing at the expense of the individual sale, according to a comparison of data reported by Gen Re.

The market for this specialized insurance is growing: the number of new CII policies rose to 634,074 from 422,029 two years earlier, according to the 2011 Critical Illness Insurance Survey. New premium shot up by 67 percent, to $200.8 million from $119 million over the same period. The total insured benefit amount jumped to $8.7 billion from $6.5 billion, the survey showed.

While the total size of the CII pie has grown at a healthy clip in the past two years, the business also has shifted in favor of selling the coverage through the voluntary worksite market, a comparison of the Gen Re survey data found.

CII distribution has moved from a “kitchen-table sale” conducted by an agent or financial adviser to a model where CII is sold through the employer worksite, said Dan Pisetsky, president of US Living Benefits in Old Lyme, Conn., and founder of the National Association of Critical Illness Insurance.

The convenience of payroll deduction and changes in medical loss ratios for brokers under the Affordable Care Act has led to the rise in selling CII though the worksite, Pisetsky said. Other experts cite the decline in the number of insurers selling the coverage as a reason why distribution through the worksite has emerged as the top sales channel.

“The group worksite is where the growth has taken place,” Pisetsky told InsuranceNewsNet. He estimated that 50 insurers sell CII today.

Pisetsky also said he had noticed more financial advisors adding critical illness coverage as underwriters flee the long-term care market. CII policies sold through the worksite were designed for middle-income earners between 30 and 50 years old, and the policies typically paid out $20,000 or $30,000 in limits – relatively small sums.

But with the pullback in long-term care, limits on some CII policies are moving north of $50,000 as CII is considered an asset protection vehicle by higher-income policy holders, Pisetsky also said.

John Harmeling, senior vice president of worksite marketing for Aflac, said CII plays an important role in alleviating the financial stress associated with catastrophic illness. Earlier this year, Aflac introduced a cancer care plan for policyholders living in New Jersey and New York. Harmeling added that CII plays an important role in alleviating the financial stress associated with catastrophic illness.

Of the 634,047 new policies sold in 2010, according to Gen Re’s 2011 survey, more than 70 percent were sold through the worksite. This is an increase of nearly 17 percentage points from the 53 percent sold that way in 2008.

In addition, 72 percent of all new business premium in 2010 was generated through the voluntary worksite channel, according to the 2011 survey. This is compared to 51 percent of all new business premium in 2008.

A total of 60 percent of insured benefit amounts came from the worksite, an increase of more than 6 percentage points from 2008.

In all three categories, gains made by the worksite channel in the distribution of critical care illness coverage came at the expense of the individual sales channel.

The 2011 Gen Re survey found that a total of 87 percent of participants not currently marketing CII coverage said they were considering developing the product. This is an increase of 20 percentage points from the 2009 survey.

Non-marketers of CII said the reasons for considering CII products included diversifying their risk portfolios, differentiating themselves in a crowded market and because agents and brokers had requested the product, the 2011 report also found.

Selling coverage through the worksite is by far the most convenient channel for employees, since policies are paid for through a simple payroll deduction. Because it is sold on a voluntary basis, the premium is most often – though not always – paid for by the employee. Employers also enjoy tax benefits.

CII polices have been around for more than 10 years. Lately, health insurance giants like Aetna and Humana, along with life and annuity insurance specialists like Aflac and MetLife, have launched CII policies.

Policies typically pay a lump sum. They cover everything from cancer to Alzheimer’s disease, or any illness specified in the policy. Between five and 15 different conditions are typically covered in CII policies.

CII policies can also cover critical care and recovery, hospital confinement indemnity and intensive care. Trustmark Insurance, for example, offers critical illness coverage for renal failure, occupational HIV, Lou Gehrig’s disease and paralysis “of at least two limbs.”

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].