Individual Critical Illness Application Development
An application for insurance is one of the most critical risk management tools available to an insurer. In the case of Critical Illness insurance, it is sometimes the only tool available for risk selection and usually the only document incorporated in the policy for legal purposes. Therefore, it is extremely important to develop an application that is comprehensive yet easily understandable, one that will suit a company’s goal and be approved by many states without objections. For this discussion we’ve worked with Critical Illness underwriter Michele O’Neill to outline some of the more salient points.
Developing a Critical Illness application is a collaborative effort. It is best to obtain input from many parties including risk management, marketing, actuarial, legal and compliance. Not all parties will share the same perspective, but a balance must be struck that is both market friendly and risk appropriate. For simplified issue or lower face amounts, the number and length of questions is generally not as extensive as larger face amounts. As these products usually carry an additional load, it is generally acceptable to limit the breadth of the questions.
In the case of Critical Illness, there are a limited number of events that could trigger a payment. The core events normally cover cancer, heart attack, stroke, renal failure and major organ transplant. These events can be specifically defined and their greatest risk factors can be identified. Supplemental triggers also need to be incorporated. In the case of a trigger, such as Loss of Vision, it would be important to add questions regarding current vision or eye disorders that would not otherwise be needed if Loss of Vision was not covered. If a company decided to cover paralysis, questions regarding occupation and avocation would be important.
No application can cover every conceivable disease or disorder that might predispose an individual to a particular benefit trigger. The goal is to identify the top pre-disposing factors for each benefit eligibility trigger and incorporate them into an application. Once the benefit triggers are decided upon, the first step is to create a list of conditions that would increase their incidence. Risk factors for heart attack and stroke are similar and include tobacco use, high blood pressure, high cholesterol or triglycerides, obesity, diabetes and family history. Cancer shares some of these same risk factors, but not all. Predisposing conditions, such as a previous history of a trigger or conditions that would increase the chances of a trigger, also need to be developed. When these risk factors and predisposing conditions are established, there is still the need to convert these items into questions. Questions should be asked with particular attention to “plain English,” making them easy to understand and unambiguous. Whenever possible the use of technical terms should be avoided. It is important that the person completing the application understands the questions.
Once the questions are established for each trigger, they need to be weighted based upon their overall contributing value to the combination of benefit triggers. Since smoking is a risk factor for each of the cardiovascular triggers and cancer, a smoking question should carry more weight than a question that would has a lesser correlation to the triggers.
Since the application is the only piece of the underwriting evidence included in the policy, it is the only legal protection an insurer has against non-disclosure or fraud. Insurers should do as much as they can to ensure that all questions are clear and unambiguous. This will ensure that claims will be handled and paid when expected. It may help in costly claims disputes and adverse reputational risk involved with denying claims.