Although details are scant, Munich Re-insurance Co. of Canada confirms that it is leading an industry-wide effort to create consensus on definitions for critical illness insurance. Munich Re will trumpet those definitions at the World CI Conference in Toronto at the end of April.

“In response to advisors’ requests and to help grow the critical insurance market in Canada,” Frederic Jacques, director of living benefits with Munich Re in Toronto, writes in an e-mail to Investment Executive, “insurance companies have come together to develop CI benchmark definitions that will be more consistent across the market.”

Munich Re is at least a few weeks away from a finalizing the standards. In the meantime, Helene Michaud, Munich Re’s chairwoman for the project, does not want to talk about specifics. In fact, the entire industry has fallen into line — mum’s the word.

Munich Re, a division of Ger-many-based Munich Re AG, covers most of the CI insurance market in Canada. Swiss Reinsurance Co. Canada, a subsidiary of Zurich-based Swiss Re, covers Mississauga, Ont.-based RBC Life Insurance Co., among the top-five players in the market, and a few more. So, it’s no surprise that Munich Re, along with insurance carriers in Canada, would like to see more CI policies sold. The more that happens, the wider the risks are spread and volume begets volume. Prices can come down, product features can be tweaked and the industry would enjoy some sales traction.

Almost always, different coverage and definitions for major illnesses across the various carriers is a named as one of the culprits for poor sales. Achieving consensus on definitions can’t hurt.

Sales growth has averaged about 2% a year since CI insurance arrived in Canada, although it was actually down in 2007. About 80,000 individual policies were sold in 2007, compared with 90,000 in 2006, according to Connecticut-based LIMRA International Inc. The banks have had plenty of success in selling CI insurance as a credi-tor-protection product for mortgages, but those are small policies and don’t add much to premium totals.

To understand the basics of standardization, simply imagine opening this can of worms: you want to sell CI insurance to your client, a 40-year-old male; first, you need to determine how much he is concerned about coverage for prostate cancer, because Carrier A will pay out $10,000 at Stage 1 cancer (which often doesn’t advance), while Carrier B won’t pay out until the disease reaches the second phase.

How about melanoma, otherwise known as skin cancer? Try telling the 50-year-old snowbirds in your client base that skin cancer is defined by lesion depth — literally, to the millimetre — and it differs from carrier to carrier; seven millimetres is insurable cancer in one policy, while a lesion depth of one centimetre is required for the next.

If you move onto heart attacks, one carrier’s policy may insist on the presence of certain markers (proteins and enzymes) in the blood to define a heart attack as a critical illness that it covers.

Strokes? Some policies won’t cover incidents that include permanent damage, because that overlaps with long-term disability insurance.

Exacerbating the challenge for advisors, one carrier will cover a handful of illnesses that another simply will not. One covers illness from the West Nile virus; another won’t cover old age disabilities. Some carriers will insure for 18 illnesses; others, 21.

On top of that, in certain instances, a client with family medical history may find certain illnesses excluded from his or her policy, also defined in medical terms.

To do justice to your client, then, you will do best by providing a detailed list of definitions for several policies for analysis by a family doctor or specialist.

But, even then, there’s no guarantee the policy the client wants will be underwritten, or even that the claim will be paid out in the event of an illness.

These nuances may be a way for carriers to differentiate their products in the marketplace, but some advisors say the smorgasbord of definitions is enough to turn them away from the product altogether.

“All these little things have messed up how claims are introduced and how they are paid and, to some extent, client satisfaction,” says Byren Innes, senior vice president and director with NewLink Group Inc. in Toronto. “So, there are some issues there.”

@page_break@The standardization of definitions should, theoretically, create more support for the product in the independent advisor community, according to Munich Re.

“These new and updated definitions will clarify and streamline CI definitions,” says Jacques. “They should help advisors become more familiar with the product, address some of the complexity issues and encourage more advisors to market CI to their clients.”

It appears that, fundamentally, Munich Re is trying to standardize the definitions for the three major illnesses. Together, heart muscle damage, cancer and stroke make up 85% of CI claims.

Not all CI insurance manufacturers are participating in the effort to standardized definitions, however. Transamerica Life Canada isn’t at the table, for instance.

So, why, for example, should Manulife Financial Corp. , which competes against those carriers, agree to broad illness definitions that make it hard to distinguish its product from 80% of the market?

It’s possible product differentiation may not matter. It’s hard to compare across markets for many reasons, but the CI market in Britain is more developed and definitions are standardized in that country. The majority of product in that market isn’t guaranteed, however, and carriers in Britain don’t offer return-of-premium versions of the product, either. The loss of those two features alone would make the product cheaper in Canada and, potentially, an easier sell, regardless of definitions.

Nevertheless, the point is clear: CI manufacturers in Britain, where a nationalized medical system similar to ours exists, do not differentiate and market their products using medical definitions. Still, they compete in a strong market on service strength, reputation and value.

Other CI industry players say there are more pressing problems in the industry. Pick your complaint: poor product development, vague marketing, troublesome underwriting, unpredictable payouts, bad sales practices by advisors.

Bruce Cumming, an independent registered financial planner with FundEx Investments Inc. in Oakville, Ont., is so fed up with the product that he refuses to sell it until it has improved. He points to LIMRA stats that show 40% of policies are declined or re-rated, a percentage that roughly reflects his own experience. He’s a 25-year veteran of the insurance industry and he can’t recognize a pattern in CI decisions. It’s impossible to run a profitable business when almost half your work goes for naught, he says, adding that standardization might not change that, but it’s a step in the right direction.

Mark Halpern, a certified financial planner and owner of illnessPROTECTION.com Inc. , in Markham, Ont., applauds Munich Re’s effort, and says it might help sales — a bit. But then Halpern has never had any trouble meeting clients’ needs with the product.

He sells plenty of CI insurance and says advisors would be better off simply getting to know the category better and sell it based on a client’s specific needs, much as the banks do.

Halpern says the product is still relatively new in Canada, and points out that disability insurance suffered some of the same challenges when it was first sold.

Innes tends to concur. He says that carriers and advisors need to get back to fundamentals on CI insurance: “Presented properly, with a reasonable amount for an identified need, people will buy this product.”

Direct campaigns can identify interested consumers, he says, at which point advisors can customize for individual needs. IE