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1. The Marketplace for Critical Illness Coverage. August 2004. Presented by : Jerry Jacobs, CLU 5416 Yale Street Metairie, Louisiana 70003 Ph#(504)888-2242 Fax#(504)889-1753 Email: [email protected] Introduction What is Critical Illness Insurance?

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The Marketplace for Critical Illness Coverage

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The Marketplace for Critical Illness Coverage

August 2004

Presented by : Jerry Jacobs, CLU

5416 Yale Street

Metairie, Louisiana 70003

Ph#(504)888-2242 Fax#(504)889-1753

Email: [email protected]

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What is Critical Illness Insurance?

U.S. Marketplace Trends

Need for Critical Illness Protection

Product Design

Marketing Applications

Global Perspective

U.S. Critical Illness Marketplace

Why Sell C.I.I.

Q&A/Discussion – Open Forum – Issues/Concerns


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  • Approximately 1.5 million Americans suffer a heart attack each year.

    Of these, 1.1 million survive at least three (3) years.

  • Over 40% of the population will develop breast, prostrate, or some

    form of cancer at some point in their lives.

  • The probability of surviving a critical illness before age 65 is almost

    twice as great as dying.

Source: 1987 Employee Benefits News And Views Magazine

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What Is Critical Illness Insurance?

  • Critical illness insurance (C.I.I.) has characteristics of both life insurance and health insurance.

  • C.I.I. pays a life insurance-type lump sum benefit, upon diagnosis of one of a number of critical illnesses rather than upon death.

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C.I.I. Coverage

  • C.I.I. will pay a lump sum benefit after the insured is diagnosed with a critical illness. Virtually all products cover the “Big Three”:

    • Heart Attack

    • Stroke

    • Life Threatening Cancer

  • Nearly 70% of all deaths under age 75 are associated with heart disease, stroke and cancer.

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    The “Big Three”

    • Heart Attack

    • Death of a portion of the heart muscle(myocardium) from a blockage of one or more coronary arteries.

    • Stroke

      • Any acute cerebrovascular accident producing permanent neurological impairment resulting in at least thirty (30) days of paralysis or other measurable neurological deficit.

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    The “Big Three”

    • Life Threatening Cancer

      • Only those types of cancer shown by the presence of a malignancy identified by the uncontrolled growth and spread of malignant cells and the invasion of tissuethat could result in death.

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    World Growth

    • Concept developed by Marius Barnard

    • Introduced South Africa in 1980s

      • United Kingdom

      • Japan

      • Continental Europe

      • Australia

      • Canada

      • Ireland

      • United States

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    Types of Critical Illnesses

    • Heart Attack

    • Stroke

    • Life Threatening Cancer

    • Coronary artery (bypass) Surgery

    • Angioplasty

    • Renal (kidney) Failure

    • Major Organ Transplant

      (heart, lung, liver, bone marrow)

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    Types of Critical Illnesses

    • Alzheimer Disease (before age 65)

    • Brain Damage

    • Coma

    • Loss of Hearing

    • Loss of Independent Existence (before age 65)

    • Loss of Sight

    • Loss of Speech

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    Types of Critical Illnesses

    • Loss of use of two or more limbs

    • Multiple Sclerosis

    • Muscular Dystrophy

    • Parkinson’s Disease

    • Rheumatoid Arthritis (before age 65)

    • Total Permanent Disability (before age 65)

    • Benign Brain Tumor

    • Diabetes

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    Illnesses Types of Critical

    • Emphysema (before age 65)

    • Heart Valve Surgery

    • Severe Burns

    • Terminal Illness

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    U.S. Marketplace Trends

    • Medical technology is keeping people alive longer

    • The concern today is not dying too soon – it’s living long

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    People Living Longer

    • 65 year old male can expect to live to age 83

    • 65 year old female can expect to live to age 87

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    Attitudinal Trends

    • Consumers have greater fears than premature death, such as:

      • The cost of health care

      • Cost of nursing homes

      • Having enough income to retire

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    • Demographics favor living benefits over death benefits

    • THE RESULT: Individual life sales have declined

      30% over the past ten (10) years.

    Source: Marketing Edit LIMRA 1997

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    Why C.I. Coverage?

    • Probability of surviving C.I. before age 65 is almost twice that of dying

    • Costs associated with C.I. are not covered by traditional insurance

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    Why C.I. Coverage?

    • EXAMPLE: Two-thirds of all cancer-related costs are indirect,

      non-medical expenses, such as:

      • Lost income for C.I. Survivor

      • Lost income and work time for spouse or care giver

      • Housekeeping and child care expenses

      • Home health care needs

      • Home or car modifications

      • Non-covered experimental treatments

      • Expenses not covered by insurance (including co-payments

      • and deductibles)

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    If you survive a critical illness, what will you do?

    • Life Insurance – with rare exception, not available while the

      sufferer is alive. Intended for dependents or beneficiaries.

    • Health Insurance – Possible limited benefits

      deductibles/co-pays. May be limited in scope of portability if the

      sufferer leaves his/her employment.

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    If you survive a critical illness, what will you do?

    • Disability Insurance – pays a percentage of the sufferer’s

      monthly income and benefits are dependent upon ability to


    • Long Term Care – limited to a daily benefit available subject

      to a hospital stay or home nursing requirements.

    • Accumulation Products – intended to provide supplemental

      retirement income.

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    Critical Illness Insurance

    • Insured has options

    • The money provided by the C.I.I. empowers the insured

      to exercise choice.

    • C.I.I. is a consumerist product

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    • Essential ingredient of a life insurance product = probability

      of death (qx)

    Life Insurance Product

    • Investment

    • Expenses

    • (qx)

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    • Essential ingredient of a C.I. insurance product = probability of

      diagnosis of a critical illness (ix)

    Critical Illness Product

    • Investment

    • Expenses

    • (ix)

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    • Any life insurance product design can, in principle, be

      be duplicated in a corresponding C.I.I. product by

      exchanging the key probability of death (qx) for the key

      probability of a diagnosis of critical illness (ix)

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    Basic Types of C.I.I. Coverage

    • Acceleration Benefit Rider

      • Pays all or a portion (usually 25-100%) of the life face amount

      • upon diagnosis of a critical illness.

    • Additional Benefit Rider

      • Pays the rider face amount upon diagnosis of a critical illness.

    • Stand Alone

      • A health product which pays a lump-sum benefit upon the

      • diagnosis of a critical illness.

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    Product Design Options

    • Covered Diseases

      • Definitions must be consistent with incidence rates used in

      • pricing.

    • Waiting Period

      • First diagnosis must be made following some specified

      • time after the issue date of the policy.

    • Survival Period

      • Built on assumptions that the purpose of C.I.I.

      • coverage is to help cover the costs of living with a

      • critical illness. Example: Must survive 30 days after

      • after diagnosis to be eligible for C.I. benefit.

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    Product Design Options

    • Premium Guarantees

    • Acceleration Amount

    • Pre-Existing Conditions

    • Maximum Age

    • Maximum Face Amounts

    • Reduced Amounts

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    Family/Individual Perspective

    • Replace reduced earnings

    • Pay off personal debts

    • Cash for medical treatment or associated expenses

    • Education

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    Business Perspective

    • Buy/Sell Agreements

      • Provide ill shareholder with benefit

      • Enable working shareholders to buy out ill shareholder

    • Key Person

      • Pay off creditors

      • Executive perquisite

      • Recruit replacement with similar talent

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    C.I.I. Product

    Critical Illness Insurance is Flexible

    • Life

    • Health

    • Disability

    • Other products

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    C.I.I. Global Perspective

    • South Africa

      • Concept – Marius Bernard

      • 1983 – introduced – Abbey Life

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    C.I.I. Global Perspective

    • U.K. Success Story

      • 1987 – Introduced

      • 1993 – 70 companies sell C.I.

      • (12 billion in force in 1995)

      • 1997 – 626,584 new policy sales (33% over 1996)

      • Two million policies in force

      • C.I. policy sales have increased in each of the last six years as

      • a percentage of overall individual life sales (22% in 1997)

      • 83% of sales are mortgage related

    Source: Financial Times 1998

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    C.I.I. Global Perspective

    • Australia

      • 1990 – introduced

      • 1997 – 31 out of 33 Australian Life Companies offer C.I.I.

    • Japan

      • 1993 – introduced

      • (sold over 500,000 policies in first 10 months)

      • 1994 – over two million sold

      • 1997 – over six million sold covering many more medical

      • conditions since first introduced

    Source: Life Insurance Selling 1997

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    C.I.I. Global Perspective

    • Developing Asian Markets

    • 1985 Singapore

    • 1988 Hong Kong, Malaysia

    • 1990 Taiwan, Thailand

    • 1992 Indonesia

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    Total Dread Disease Policies

    1997 Net Premiums written by U.S. Companies

    N = $5,161,545,733

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    United States C.I. Marketplace

    Individual Life Arena

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    United States C.I. Marketplace

    Group Health Arena

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    Why Sell C.I.I.?

    • Insurance Company

      • Replace declining life sales

      • Global sales success

      • Fits into health, disability arenas

      • Distribution channels

      • Emphasis on living benefits..demographics

      • Potential higher return on capital

      • Leverage distribution

      • GROWTHS$

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    Why Sell C.I.I?

    • Producer

      • Fits marketing organizations (career,

      • independent agencies, producer groups)

      • Fits market segments

      • Living Benefits (ex., LTC)

      • Another financial planning tool for client

      • Consumer appeal is growing – wide acceptance

      • GROWTH$

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    Why Sell C.I.I.?

    • Consumer

      • Choice

      • Flexibility

      • Fills gaps for calamitous events

      • Concern about living longer vs. mortality

      • Related to C.I.I. no matter what economic level

      • Asset protection

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    Open Forum – Issues/Concerns

    Now ask yourself the question:

    Is there a market for C.I.I.?

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