In a move aimed at making critical illness insurance more affordable, Desjardins Sécurité Financier of Montreal recently launched a lower-cost policy with fewer frills but with limits on medical conditions covered.

The new DSF product, called Consumer CI, addresses growing concerns about increasing CI costs that have contributed to falling sales over the past two years. Since 2004, CI premiums have risen by about 25%, putting adequate coverage out of reach of many Canadians. The new product, DSF says, is for “those who want coverage but can’t afford it.”

The primary reason for the higher cost is an increase in the number of illnesses covered — five illnesses were covered 11 years ago, when CI was first introduced in Canada, while almost 30 are covered today. For each additional illness covered, a reserve fund must be created, sending costs higher, says Sean Long, health products consultant with DSF in Toronto: “This has also made the underwriting process more complicated and expensive.”

Typically, reinsurance companies insure the risks — wholly or partially — assumed by insurance companies that issue CI policies. Although the primary insurer is responsible for all claims arising from policies issued, they use reinsurance companies to reduce their risk exposure to and financial liability for potential claims. Accordingly, reinsuring more illnesses adds to the cost.

Additional bells and whistles — such as access to medical expertise around the world — have also driven costs higher, Long says. “Most individuals do not see this feature as essential,” he says.

Although Canadians typically want as many guarantees as possible for covered illnesses, all claims made since CI was first introduced in Canada are for only seven illnesses, says Long. In fact, he says, 97% of all CI claims are based on five conditions. With this in mind, the Desjardins Consumer CI policy is designed to cover seven illnesses — heart attack, stroke, cancer, coronary artery bypass, multiple sclerosis, blindness and deafness/loss of speech.

“We recognize that coverage for an increasing number of conditions effectively priced CI insurance “out of reach of people who need it most, especially the middle and lower middle class,” says Long. He wonders if it is necessary to be covered for as many conditions as possible, even though the probability of becoming critically ill from many of the conditions covered by more extensive policies is relatively small.

“It is prudent to reduce the number of conditions covered to those that statistically are most probable and cap the payout limits to make it possible to provide
a more affordable product,” Long adds.

Insurance experts suggest that this type of CI product may catch on where the fancier version of the product has not. Tim Landry, director of living benefits with MSA Financial Services in Montreal is “a strong believer in covering only illnesses that are critical,” especially as claims have been made for only a few illnesses. Given that the cost of CI increases with the number of illnesses covered, “any product that renders CI insurance more affordable is an excellent idea,” he says.

Ironically, Consumer CI is “going back to the past to get to the future,” says Long. The product represents the first major structural change in 11 years. Long says the industry was getting ahead of itself in terms of features and complexity of CI insurance and “lost control of the market it was meant to serve when it started adding more illnesses.”

Arguably, Canada is a relatively new, immature market for CI insurance and there is no significant client base to work from. Long argues that, given advances in medical technology, what “is a major critical illness today may not be so in the future. Therefore, clients can prudently decide to buy minimum guarantees that cover their needs in the foreseeable future, which is more affordable.”

The other side of the coin is that claims could increase in the short term because of improved medical technology. For instance, mandatory cancer examinations could increase the frequency of CI claims because of earlier detection, even though the mortality rate may decrease. Improvements in diagnosing heart disease also could result in a dramatic increase in claims.

The DSF product will cost between 12% and 30% less than other existing CI policies, based on age and other conditions. The pricing, terms and conditions of CI generally depend on many factors, including age, gender, lifestyle, pre-existing medical conditions, family medical history, type of coverage (basic or enhanced), amount of coverage, terms of coverage and specific conditions covered. Generally, premiums are higher for men because they have a higher incidence of common illnesses such as heart attack and stroke. Consumer CI is available in 10- and 20-year terms.

@page_break@DSF’s target market includes but is not limited to individuals who have mortgages and lines of credit, new entrepreneurs, new homebuyers, small-business owners, new immigrants to Canada and single parents “who really want coverage they can afford,” says Long. The target age group is 28 to 48 years old.

DSF has developed an intensive education program for its advisors on CI insurance. Long says the company is not in favour of standardized definitions for covered illnesses — a much debated issue that some claim will introduce greater clarity in defining illnesses covered by CI policies — although DSF is willing to talk about it with industry professionals, brokers, agents and competitors.

Long says DSF will continue to offer a more comprehensive version of CI insurance. Advisors will also be involved at the start of in the claims process in order to facilitate speedy payout. IE