Critical Illness Flashcards
Critical Illness Insurance in Canada
2 Types of Critical Illness Coverage
Which is the most common one? Bolded
- Standalone
* T10 - 10 year Term Renewable to Age 75
* T75 - Level Term to Age 75
* T100 - Level Term to Age 100 - Acceleration
* Full Acceleration - FA on earlier of CI or death
* Partial Acceleration - percentage of FA (25% OR 50%) for CI and remaining upon death
Life insurance with CI Acceleration rider is usually cheaper than buying 1 Life and 1 Standalone CI because only pays one event.
Critical Illness Insurance in Canada
Specific Areas of Concern during Product Design Process
- Definitions (what conditions trigger benefits payout, limit or no benefits for conditions that are non-life threatening)
- Avoidance of anti-selection at issue (e.g., no payout for cancer claims submitted within 90 days of issue)
- Potential high costs of some conditions beyond age 75 (Alzheimer’s)
- High costs for policies guaranteeing to age 100 due to early detection of conditions because of medical advances.
Critical Illness Insurance in Canada
Definition of CI to payout benefits
- Insured is diagnosed with Covered Condition by Doctor
- Condition meets the Defintion in the Policy and is not Excluded
* Non-life threatening conditions are Excluded to control costs - Survive a Specific Period after diagnosed (usually 30 days)
The purpose of CI is to to provide financial suppports to survive a CI instead of a death benefit
Critical Illness Insurance in Canada
4 Major Versions for Standalone Product
- Basic (covering 4 major conditions)
- Enhanced (covering 15-20 additional conditions)
* Costs about 30% more than Basic and is very popular - Enhanced + Return of Premium on Expiry
- Enhanced + Return of Premium on Expiry + Return of Premium on Surrender
Critical Illness Insurance in Canada
List Conditions Covered
4 Baisc and Remaining Enhanced
1. Life-Threatening Cancer
2. Coronary Bypass
3. Stroke
4. Heart Attack
5. Multiple Sclerosis
6. Kidney Failure require dialysis
7. Major Organ Transplant
8. Brain (2) coma, benign brain tumor
9. Head (3) deafness, loss of speech, blindness
10. Body (4) loss of limbs, occupational HIV, paralysis, major burns
11. Degenerative (3) motor neuron disease, Alzheimer’s, Parkinson’s
12. Cardiovascular (2) heart valve replacement, aortic surgery
Critical Illness Insurance in Canada
Do we have credible data?
NO
CI first introduced in South Africa in 1983, and Canada in 1995. Thus, little usable experience data.
There are no industry tables for CI Incidence Rate, and most companies have little or no credible experience.
Companies often obtain CI rates from reinsurers.
Critical Illness Insurance in Canada
CI vs. Life
CI vs. Disability
CI vs. Disability - CI is not a substitute for Disability. Disability is replacement of income over time.
CI vs. Life - The per thousand rate is 3 times higher than Life due to the incidence rate is also 3 times higher than Life. Thus CI is no more expensive but more important.
Critical Illness Insurance in Canada
Standard Product Design of T75
level term to age 75
- Standalone
- Fully underwritten
- Level FA and Level Premiums
- Require survival period of 30 days after diagnosis
- Return of Premium on death if no benefit has been paid
- No payment for cancer diagnosed during first 90 days after issue day
- Definitions of covered conditions are guaranteed to expiry
Critical Illness Insurance in Canada
Pricing Process (a)
What is Incidence Rate?
Probability of diagnosed, meeting policy definition, and being alive for the required survival period
Critical Illness Insurance in Canada
Pricing Process (b)
List 2 Pricing Approaches
- Commerical Product Modeling Software - put assumptions, profit objectives, and capital limitations in system to get how much product is costed (“Costing”)
- Commerical Premium Rate Quotation Service - position premium rates relative to major competition thus meet the sales goal (“pricing”)
Both used concurrently to balance financial objectives (Cost) and desired level of sales (Pricing)
Most CI products are reinsured thus those need to be reflected in the pricing process
Critical Illness Insurance in Canada
Pricing Process (c)
Incidence Rate Development Process
- Start with General Population - age specific incidence rates
- Adjust rates based on the Condition Definitions
- Apply formula to account Trends over time
- Use ratio of Insured Lives to Population Mortality to adjust incidence rates from general population to insured population
- Use ratio of Non-smoker to Smoker Mortality to segment aggregate incidence rate into smoker and non-smoker rates
- Use ratio of Select to Ultimate Mortality to create Select and Ultimate Incidence Rates
- Compare to your own Experience and adjust as appropriate
Once the rates for each of the major conditions are determined, total those and assume 85% of total incidence rate for all condition is from the Big 5 Conditions, and the remaining 15-20 conditions are about 1% of total incidence rate each
