Multilife Critical Illness Underwriting
February 13, 2013| By Steve Rowley
Region: North America
Multilife CI underwriting in the U.S. currently presents some greater challenges than are present in other lines of voluntary worksite/group business. Critical Illness, as the proverbial “new kid on the block,” is not well understood by many brokers, regulators, and the public at large. The product is relatively complex and expensive as compared to such existing core products as life insurance, STD and AD&D. The current economic climate results in limited appeal for employer-paid CI, so the emphasis is on the voluntary sale. In view of this, Peter Sauer, our Chief CI Underwriter, has put together the following overview of the issues facing the CI Multilife underwriter.
The prevalent sentiment among marketers is that some kind of guaranteed issue offer is a necessity to achieve any meaningful enrollment. It is axiomatic that an “adequate” level of participation is the key element necessary to write guaranteed issue business profitably. Historically, a typical benchmark for this has been a minimum of 20% participation. A case with favorable characteristics will often meet or exceed this baseline participation on the core products, leading to a practice of allowing the enrollment to proceed up to the guaranteed issue limit without confirming the level of participation in advance. With Critical Illness, at this point in time, there is a greater likelihood that participation will not meet the target, resulting in participation levels termed “risky” from a profitability standpoint.
What are some other CI multilife underwriting factors that will contribute to achieving the dual goals of high participation and loss ratios that meet company targets?
• Product design is important. Brokers will inevitably advocate matching or exceeding the most feature-laden product out there. The reality is that each enhancement in coverage features increases the product cost, which is currently an especially significant factor. While it is appealing on the one hand to have a product that will pay for multiple critical illnesses with recurrence, the reality is that the diagnosis of the highest incidence diseases accelerates at advanced ages, decreasing the probability of recurrence. Including less common illness triggers presents a number of problems, such as diagnostic and pricing challenges along with the need to include a discussion on the severity criteria during the enrollment process. Increasing product complexity creates difficulty in gaining an understanding of the product’s benefits in the limited time the average person will be willing to invest to do so.
• Plan design must be considered. The reality is that the typical worksite prospect is not purchasing a significant amount of coverage right now. Setting the GI amount too high is inviting antiselection, and will result in lost business if the premium exceeds the average individual’s affordability threshold. Minimum group size should be set at a level where a few anti-selecting risks will not create long-term adverse experience. Spousal and dependent coverage seems to have appeal to consumers and is being more widely utilized.
• Enrollment methodology is a key factor. One-on-one, face-to-face contact is diminishing, in favor of group meetings or on-line information and enrollment portals. Certain enrollers are known to be more effective than others. Unlike life, disability, or medical, few employees are familiar with the product and as a result require a greater degree of education. Experienced worksite insurers should have a good sense of how these factors interplay in general, but less so in the specific case of CI.
The participation requirement for GI should not be waived at enrollment time, as often occurs with other products, until a company has sufficient experience with this product to gauge the results of such a practice with some degree of predictability. If this step is taken, it should be part of a carefully structured and closely monitored pilot program offering a modest level of coverage at best.
One useful approach is to utilize a flexible application that allows some amount of coverage to be considered on a simplified accept/reject basis. This allows for the immediate determination of acceptable risks with few or no additional underwriting requirements, and for reconsideration of declined risks if the participation requirement for GI is met. You can also design the application to accommodate higher applied amounts, with inclusion of additional questions that are protective to the higher amount of coverage. Is there an extra administrative aspect to this approach? Yes, but it’s worth it.
An increasing number of carriers are entering the market or are interested in doing so. Careful management of the various factors discussed here is necessary to build a profitable block of business in the U.S. market.