Critical Illness Compliance Issues
Working through the filing process and addressing various state objections can be a daunting and frustrating task for nearly any insurance product. In the case of Critical Illness (CI) insurance, this task is compounded in many states by their inexperience with this form of coverage, as well as the constantly changing CI products and features that insurers are developing. At times, the filing process can feel like a second round of product development. For additional insight, I asked Peter Sauer, 2nd Vice President of Underwriting and our primary resource for assisting clients with policy language and addressing state objections, to outline some of the challenges our industry faces.
The process of getting multi-state approvals often extends to a year or longer. Group contracts in particular may run into issues as a result of additional standard features, such as dependent coverage and portability, as well as increased product complexity, such as multiple payouts and expansion beyond the traditional core triggers. Too many “bells and whistles,” combined with an extensive menu of choices, can result in a CI contract that overwhelms regulators, brokers and consumers alike.
What is the best way to approach the process? Start by producing a generic CI contract that states the essentials in as concise and comprehensible a manner as possible. Extended study should not be required to grasp the gist of the policy provisions. Product developers should find a good balance between required technical medical terms and less complex terms that are more appropriate for the typical policyholder. Limit exclusions to items that have real significance from a pricing standpoint.
Include common coverage and policy provision requirements that are almost universal in nature, or at least constitute a major factor in your target market states. To accomplish this, insurance carriers should explore research available from their own compliance area, reinsurer or consultants.
Once the product has been fitted to the insurer’s core marketing states, consider the potential value of doing a more significant pre-submission customization of the product by jurisdiction. These may be obvious for some standard policy provisions; however, it is important to reference the correct regulations that apply to the product. An alternate approach may be to file the generic model across jurisdictions and address objections as they arise. Many of these objections will require fairly modest modifications to product or pricing assumptions.
The more difficult compliance dilemmas come into play under any of the following scenarios:
- A company is going outside of the boundaries of previous industry Critical Illness filings.
- A company feels committed to a provision that has been objected to previously.
- A regulation is truly inappropriate.
For the first two situations, it is appropriate to lead with as much explanatory information as possible at the time of initial submission. Some companies are prone to accept a restriction reflexively, which can then become an industry precedent that is never challenged in an appropriate manner. There may be a hesitance to challenge the regulatory “authority figure” by going so far as to initiate a telephone call or even a face-to-face discussion, but this can broaden the dialogue and be extremely beneficial to both regulator and insurer. However, sometimes the regulation can’t be corrected nor can an objection be overcome in the short run. In these situations, it is necessary for the product development team to predict the impact of the restriction and calculate an appropriate load to the claim costs in order to properly compensate the insurer for the added risk associated.