Critical illness insurance is nothing new. In fact, it’s been around since 1983.
But only recently has there been a major uptick in interest in this type of coverage and there are a few reasons why.
According to Mercer’s 2015 National Survey of Employer-Sponsored Health Plans, the percentage of employers with 500 or more employees offering group cancer or critical illness insurance increased 11 percent between 2009 and 2015—growing from 34 percent to 45 percent. This number could climb as high as 73 percent in 2018, according to a 2016 Willis Towers Watson survey.
More and more companies are beginning to realize that offering this form of insurance is extremely beneficial right now. And that’s not just true for businesses. Brokers can make big bucks this month, next month, and in the months ahead by having this particular product in their portfolio. What happened to create these favorable marketing conditions? Let’s take a look.
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The Domino Effect
It’s not just a mere coincidence. Over the last several years, critical illness insurance has soared in popularity due to a number of concrete reasons. One of them has to do with employers shifting the cost of health care onto their employees’ shoulders.
According to KFF’s 2015 Employer Health Benefits Survey, employees had to pay a whopping 255 percent more for their individual insurance deductibles in 2015 compared to 2006. Additionally, the Foundation reported the number of workers with deductibles of $1,000 or more nearly doubled between 2010 and 2015—increasing from 27 percent to 46 percent.
If we look at the bigger picture, we can retrace one incentive for employers to make this decision back to a central component of the Affordable Care Act: the Cadillac tax.
This 40 percent excise tax on high-cost employer-sponsored health coverage was set to go into effect in 2018, but has been delayed until at least 2020. In short, employers must pay the hefty tax if the total cost of an employee’s coverage exceeds a specified threshold amount. And in an effort to avoid triggering it, employers have been switching to low-cost, high-deductible plans, thereby transferring the brunt of health care costs to their employees.
As one would expect, employees have not happily embraced their resulting higher out-of-pocket expenses. So, in order to offset risk for their employees and increase satisfaction and retention, many employers have begun to enhance their voluntary health benefits.
By doing so, companies can offer their employees a wide selection of products that can fill in their coverage gaps. What’s more, they can often do so at no additional cost, making a product like critical illness insurance very attractive to all parties.
Unparalleled Consumer Interest
In part, consumers’ interest in critical illness insurance stems from the chain of events that may have cut back their benefits and caused their deductibles to skyrocket. However, this is just one of several influences. As weird as it may seem, advances in medicine and technology have also helped to make critical illness coverage more attractive.
In 2015, the National Cancer Institute reported that the death rate for cancer decreased by 1.8 percent per year for men and 1.4 percent per year for women between 2003 and 2012. In addition, a 2016 American Heart Association report showed that the relative rate of stroke death declined by 33.7 percent between 2003 and 2013.
While these statistics are stellar from one perspective, they’re not so great from another. Out-of-pocket costs for a critical illness can be as high as $14,444 and lost income can be as much as $50,600, according to a 2014 MetLife study. In other words, battling a critical illness could be just the tip of the iceberg. If someone’s lucky enough to survive a critical illness, he or she may still suffer major financial damage due to high medical bills and restricted income. As evidence, a 2013 NerdWallet Health study estimated medical bills were at fault for approximately 57 percent of all personal bankruptcies.
To stave off debt, some older adults dip into, or sometimes deplete, their retirement savings and end up paying extra due to resulting taxes, fees, and reduced health insurance subsidies. However, other adults don’t even have enough, or near enough, of a nest egg saved to cover all the costs. Forty-one percent of those surveyed in the MetLife study reported living paycheck to paycheck.
Consumers, especially younger adults, are starting to realize the only way they can combat the cruel costs associated with a critical illness is through the precautionary purchase of critical illness protection. Unlike health savings accounts, long-term care insurance, and disability insurance, critical illness insurance provides beneficiaries with a lump-sum payment they can use for any expense.
New and Improved Products
In 2010, the ACA absolved critical illness insurance of the underwriting and benefits mandates that major medical coverage must adhere to. Combine that tidbit with the fact that numerous businesses and consumers are growing interested in critical illness insurance, and it’s no wonder why more and more insurers have started offering new and/or improved critical illness products.
Originally, this type of insurance only paid out for one occurrence of a listed condition. Moreover, a beneficiary’s policy was terminated upon this payout. Now, insurers offer policies that cover a wider variety of conditions and allow beneficiaries to receive multiple payouts if they suffer from a reoccurrence or another condition entirely.
As a result, the critical illness industry is seeing impressive growth. Gen Re reports that, from 1999 to 2014, critical illness policy premium revenue swelled from $8 million to $381 million. This involved a 15 percent increase from 2013 to 2014 alone!
Insurers have adapted their offerings in order to prevail in the ever-evolving health insurance market. Subsequently, they have experienced a wealth of success. Now, it’s your turn to add this golden product to your portfolio and claim your share of the profit pot.
Hopping on the Bandwagon
Though critical illness insurance has been around for three decades, it’s still a relatively new and mysterious form of coverage to many people. However, due to legislative changes, societal advancements, industry-related improvements, critical illness insurance is one thing businesses and consumers both want and need.
In the previously mentioned Willis Towers Watson survey, nearly all American employers (92 percent) reported believing that voluntary benefits and services will be vital to their employee value proposition throughout the next three to five years. Furthermore, approximately three-quarters of those surveyed in the MetLife study who didn’t own or hadn’t heard of a critical illness policy found the idea appealing.
What does all this information mean for brokers like you? It means now’s your time to shine selling critical illness products.
As an insurance professional, you have the knowledge and credibility to educate business leaders and consumers and make the sale. Build bridges with businesses by offering to be their personal consultant. This will open up many new avenues for you to expand your business.
While someone is in a fight against a critical illness, the last thing they should have to worry about is if they have enough money to fund the battle. Be the one to stand up and offer this profitable form of protection and get ready to reap the benefits.
A modified version of this article was previously published in the June 2016 issue of California Broker Magazine.
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