When critical illness insurance was introduced in Canada in 1993, many in the industry thought it was a miracle product that would change the industry forever. Conceived in 1983, CI insurance was the brainchild of South African heart surgeon Marius Barnard, brother of heart transplant pioneer Christian Barnard. Marius wanted to help heart attack patients overcome the financial burden brought on by their illnesses.

A decade later, Canadian advisors had the opportunity to offer CI to their clients as a relatively inexpensive way to protect against the financial hardships associated with serious illnesses, particularly heart attack, stroke and cancer. Advisors could sell the product on the basis of low premiums; tax-free, lump-sum claim payments; and the peace of mind that goes along with knowing that a major illness does not have to be a financial disaster.

Sales in Canada didn’t exactly go through the roof. Although they have picked up — and then dropped off — over the years, it’s safe to say the public hasn’t fully caught on to this relatively new product.

One factor affecting sales is the rising price. There were five price increases during CI’s first decade in Canada, as reinsurers struggled to find the appropriate premium levels for the new product. The most recent — and most significant — increase took place in 2005, when premiums rose by as much as 18%.

Those price hikes are still having an impact on sales, according to LIMRA International Inc. ’s third-quarter report on Canadian individual CI insurance. “Pricing increases implemented in 2005 continue to impact sales,” LIMRA’s Kenneth Isenberg writes in the report, which found total new CI premiums decreased by 6%, benefits dropped 10% and policies lost 4% for the first nine months of 2006.

In early 2005, shortly before the price increases took effect, insurers experienced a surge in sales of policies with the “old” prices, Isenberg observes in the report.

Before the new pricing structure, sales had been increasing at a healthy pace. In 2003, sales of new CI policies grew 20% over the previous year, with a 34% growth in premiums. Growth slowed in 2004; new polices increased by only 3%, while total new premiums went up by 11%. In 2005, sales of policies were down 3% from the previous year, resulting in only a 1% increase in premiums. (Total premiums increased against a drop in new policies because of the price increases.)

Sales are not growing this year. The LIMRA report shows decreases both in premiums (6%) and number of policies sold (4%) for the first nine months of 2006 compared with the same period in 2005.

What must be done to reverse these negative trends? The strategies that have worked in the past might not be the best solutions for the future, says John Parker, assistant vice president of living benefits products and marketing at Manulife Financial Corp. in Toronto. “Maybe what was needed to be done to grow it to its current level isn’t necessarily what’s going to be needed to grow it to the next level,” he says.

Early marketing efforts included a “push” strategy, in which the insurers sent promotional material to advisors to help them introduce the product to clients. But unlike life insurance, CI is still largely unknown among the general public, and insurers need to do more to get the CI story out to a broader audience.

Some insurers are heeding the call. RBC Insurance has run television commercials for its CI product. And Manulife, for one, has a video on its Web site featuring a testimonial from a client who made a claim on his CI policy. Advisor Mark Halpern runs an enormously successful practice out of his office in Markham, Ont., based on radio commercials that focus on CI (see page 38). Insurers need to build on that exposure to make CI a household word.

While the public needs to learn about the product, so do advisors. They are telling insurers about the challenges they face and identifying areas in which they need help, according to Parker. “Insurers are now focusing on providing the sales support and training that advisors say they need,” he says.

As the CI policies have become more expensive and the features more complex, advisors are finding they need a more detailed knowledge of the product — and the type of clients to whom it might best appeal — in order to be comfortable selling CI insurance.

@page_break@“Some advisors need to understand the product better,” Parker says. “Some need to understand what kind of clients they should be targeting. Some need help in how the underwriting process works and how insurers screen clients.”

Parker is optimistic CI will return to growth mode, but that’s not going to happen overnight. “Growing critical illness insurance is a matter of getting more advisors selling critical illness insurance,” he says. “And that’s a learning process. How do I sell it, and to what kind of client? How is it different from other products such as life insurance, wealth-creation products or disability insurance? That’s what takes the time and the support.” IE