Developing a Critical Illness Product
September 14, 2012| By Steve Rowley
Region: North America
Once a company has made the decision either to enter the growing Critical Illness insurance market or to revise its existing Critical Illness product offerings, the time is right to begin the difficult process of deciding which benefits and product features should be included in the new policy. This blog entry outlines some of the more common features available in the market today and is intended to help insurers focus on the most important issues.
When reviewing each of the issues that follow, it is important to keep in mind the unique needs of your target market and distribution, as well as how your company plans to package the Critical Illness offering in relation to other products. For instance, a stand-alone Worksite product would likely look very different than a high face amount Individual product or a Critical Illness rider to a Disability product.
- Product platform is one of the first items that should be determined when developing a new product. Critical Illness insurance can be offered as an Individual, Worksite Individual, True Group or as a rider to another underlying product. Each has its own pros and cons, and the decision as to which platform(s) to use will normally be tied to which (if any) product you are hoping to complement with the addition of a Critical Illness benefit.
- Benefit eligibility triggers the need to be thought through and decided upon fairly early in the product development process. Understanding the risk and marketing value of each is essential. Choosing how many and which eligibility triggers to offer should be given careful consideration. A well-balanced product development team will focus as much on the company’s ability to price, underwrite and adjudicate claims on a benefit trigger as they will on the marketing appeal.
- Payout provisions must also be considered early in the product development cycle. A number of variations exist in the market today. In its simplest form, the policy or rider would terminate once the benefit has paid out at the face amount. This has the advantage of being easiest for the consumer to understand. More complex models that pay multiple payouts are also available.
- Policy termination and reduction will have a substantial impact on pricing. Like other health insurance products, the risk of a Critical Illness claim increases sharply with age. As such, the longer the policy is renewable, the greater the premium. Companies have addressed this in a number of different ways, from terminating around age 65 or 70, to scheduled benefit reductions at varying ages.
- Lapse rates are based on educated assumptions as few, if any, insurers have reached the ultimate period for business issued in the United States, and even less have a truly credible block. Therefore it may be best to tie the ultimate lapse rates back to other similar products, especially those with which it may be co-marketed.
- Underwriting is an important factor that must be understood and factored into the design and pricing of Critical Illness products. Given the unrestricted cash benefit levels that Critical Illness policies can pay out, it is important to acknowledge that there are individuals who will select against the company when purchasing this coverage. The underwriting process - from application design and requirements to the manual used for decisions - is the best first line of protection for the insurer. Careful thought should be given to how your underwriters will protect the company from anti-selective buying behavior.
- Claims administration is too often an afterthought rather than an important part of the product development process. Countless assumptions are made during the development of the Critical Illness product, and the burden falls on the claim department to administer the policy correctly and enforce protective provisions. In order to do this, the claim management team should understand the product and advise the product team whether the claim department has the proper resources to adjudicate the product as defined.
In summary, many important decisions need to be thought through when developing a Critical Illness product. Gen Re is pleased to provide you with this outline of some of those issues that we feel should be discussed and resolved early in the development cycle. We welcome the opportunity to dialogue with our clients throughout the process.
Continue to check back for more blog entries that will walk through the continuum of Critical Illness insurance issues.