The critical illness (CI) insurance market in Canada is struggling. Stand-alone, fully-guaranteed individual CI policies have been available for around 20 years, and yet penetration rate among Canadians is only 3%.
CI Insurance provides a lump-sum living benefit for a policyholder diagnosed with a pre-defined illness, such as a genetic disorder or terminal cancer. Anxiety levels around CI are understandably high but insurance uptake for CI coverage is comparably low.
Global reinsurer Swiss Re has released a study called Critical illness insurance in Canada: ready for redesign? in which experts suggest it might be time to re-work CI insurance policies to better serve consumers and make the policies more sustainable for insurers.
“The report is intended to start a conversation on the design of the CI insurance product in Canada. It was prompted partly by the fact that the penetration rate is very low and the product has not been selling well even though it has been available for two decades. We’re asking the insurance community in Canada to join the dialogue and suggest ways to improve the CI insurance product,” explained Kulli Tamm, senior economist, Swiss Re.
Any re-design of the CI insurance product would need to address the potential culprits impacting penetration rate, as well as the issues insurers face in writing the product. Research papers have suggested a lack of consumer awareness and familiarity with CI insurance as one of the key issues among consumers.
Scientific advances, particularly in medical diagnostics, are putting pressure on the CI insurance product and potentially undermining its viability for insurers. This is because of the growing risks of over-diagnosis and anti-selection, spawned by technological advancement, and resulting in a spike of unanticipated claims.
“A good example of the medical and technological advances we’re talking about is the game-changing next-generation cancer diagnostics that are in development, namely liquid biopsy, which allow for early screening and diagnosis of cancer,” Tamm told Insurance Business. “This early diagnosis may trigger a CI insurance payout based on the terms and definitions in the existing policy models, even though the diagnosis is not yet critical and may never become so. That’s the risk of over-diagnosis. Cancer is the most obvious candidate here due to the biopsy developments, but there are also similar advances in other areas of medicine, which could all potentially lead to significant over-diagnosis risks for insurers.”
The CI risk landscape in Canada has also been impacted by legislative changes, such as the recently enacted genetic testing legislation. This bars insurers from requiring applicants to undergo genetic testing or to disclose results from any previous tests they’ve done. This presents a big risk for potential anti-selection from an insurer’s perspective, and could result in significant rate increases - which would be damaging for a struggling market.
So, what’s to be done about the CI insurance problem? Swiss Re has suggested a number of possible product improvements that could make CI insurance more sustainable, relevant and affordable. The reinsurer has suggested a tiered product system whereby insurers would only pay a full policy limit if the diagnosed illness reaches a certain critical level, with lower tier payouts to cover less serious versions. They’ve also suggested flexible premium adjustable policies that would be heavily policed by actuaries and would give insurers an option to reprice the CI policy at certain intervals.
“We want CI insurance to be affordable and accessible to those who truly need it. That’s why we’re advocating the redesign,” said David Moss, head of L&H Client Markets Canada & English Caribbean, Swiss Re. “We want to raise awareness of the product and realization that it’s not sustainable in its current form. If insurance brokers in Canada could help us come up with a new design, that would be wonderful.
“At Swiss Re, we have the benefit of large research and development teams that can look into issues like this. Having this in our toolkit makes it incumbent upon us as an organization to spread the word and raise awareness. Our belief is that the CI insurance market need to change – and that needs to start with industry-wide dialogue.”
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