Group Critical Illness

- A Business Development Perspective

IP – 18 Group Living Benefits

CIA Meeting Nov 13 – 14, 2008

Tim Griffin, FCIA, FSA

AVP Product and Business Development, Special Markets

Agenda

•Background and International Perspective

•Group and Individual Comparison

•Marketing Opportunity

•Product Details and Fine Print

•Recent Developments

•Questions?

Background

* History:• In December 1967, in South Africa, the first

heart transplant was performed by Dr. Christiaan Barnard, assisted by his brother Dr. Marius Barnard

• Dr. Marius Barnard realized that saving people’s lives could create a financial liability

• In 1983, developed the world’s first CII policy

Background

* Inception dates:• South Africa - 1983

• United Kingdom - 1985

• Australia - Late 80s

• Canada - Individual 1993

- Creditor 1997

- Group 1999

• United States - 1998

CII Market in Canada – Group

* Growth• Slow in traditional markets; steeper in Creditor

• Importance of CII is growing due to increasing odds of surviving a critical illness and employers offering the product

* Product• Group CI product generally covers fewer illnesses than

individual product – although number of conditions is growing

• Offered as mandatory and voluntary

* Great potential• Untapped market

• Interest from employers to enhance current benefit program, offer voluntary supplemental health product

CII Market in Canada – Individual

* Client Profile in Canada

Who they are What they are buying

Average age is around 40 Average annual premium is about $1,000

75% between 35 and 54 Average benefit amount is $100,000

50% are to females Coverage for about 24 conditions

Over 80% are non-smokers

A majority of sales have a return of premium featureSource: Product Innovation in Living Benefits presentation,

Munich Re, September 2005.

Market Opportunity

* Emerging awareness of critical illness incidence

* Increasing odds of surviving critical illness with medical advances

* Financial strain associated with life-threatening diseases

* Trend in individuals shouldering increasing portion of health care costs

* Prescription drugs

* Public hospitals private clinics

* 38 % of Canadian women and 44 % of men will develop cancer in their lifetime

* More than 70,000 Canadians are expected to suffer from a heart attack this year

* Over 30 % of all new breast cancer diagnoses are in women, aged 20-49

* 6,500 Canadians aged 15 – 39 diagnosed with cancer each year

Sources:- National Cancer Institute of Canada, Canadian Cancer Statistics, 2006- Heart and Stroke Foundation of Canada, 2007 - Surveillance Division, CCDPC, Public Health Agency of Canada, 2003- Globe and Mail, July 7, 2008

Market Opportunity – Incidence

Market Opportunity – Incidence

* What are your chances?

0%

10%

20%

30%

40%

50%

60%

30 35 40 45 50 55

Chance of C.I. by age 75

Chance of death by age75

Male non-smoker

Source: Munich Re

Market Opportunity – Survival

* Better odds of surviving life-threatening illness support the need for Critical Illness insurance:

• Over 80 % of heart attack victims admitted to a hospital survive

• 62 % of people who are diagnosed with cancer survive at least 5 years

Sources:- Heart and Stroke foundation of Canada, 2007 - Canadian Cancer Society, Canadian Cancer Statistics 2008

Market Opportunity – Financial

* Can patients afford to survive?• 49 % of Canadians do not have a financial plan to

deal with a critical illness

* Financial consequences can be devastating:• 54 % use money from their savings

• 18 % mortgage or sell their house / other valuables

• 7 % rely on help from their family members / relatives

Source: Ipsos-Reid News Release, June 23, 2005

Market Opportunity – Plan Sponsor

• Offer enhanced benefit program to become “employer of choice”

* Complements their existing group insurance:

• Life insurance, by providing living benefit to insured

• Disability insurance, by offering benefit based on diagnosis, not tied to ability to work

• Health insurance, by helping to pay for both medical and non-medical expenses

• Look for optional supplemental health products – without additional costs

Product - Benefit Payout

* Paid in full upon approval of claim after survival period (typically 30 days)

* Regardless of ability to work

* Whether or not medical expenses incurred

* In addition to other insurance benefits

Product - No Spending Restrictions* Can use the benefit payout for:

•Mortgage and other debt obligations

•Ongoing expenses

•Home modifications

•Medical expenses (e.g. drugs not covered by provincial health plan)

•Or any other additional expenses

Product - The Fine Print

* Survival period:

• Time period that insured has to survive after diagnosis

• Generally 30 days unless otherwise specified

* 90-day waiting period for cancer

• No coverage for cancer if diagnosed or had symptoms within 90 days following coverage effective date

• Pre-existing condition limitation

• Typically 24 /24

Product - Medical Underwriting

* Basic and Optional guaranteed issue

• Do not require evidence of insurability

• Subject to pre-existing condition limitation

* Medical information requirements are different from Group Life insurance:

• Detailed medical questionnaire

• More automatic screening requirements

• Longer average turnaround time (10 to 15 days)

• Higher decline rate on average (2 – 3 times life)

Product - Claims

* Process differs from other products:

• Claim forms specific to covered illness

• Complex adjudication process – illness definition, exclusions, pre-existing conditions, etc

• Longer turn around time than Group Life (more comparable to Disability insurance)

Product - Claims* Claims – Distribution by Cause

Source: Munich Re Group CI 2006 Survey results

70%

15%

5%

3%

3%

4% Cancer

Heart Attack

Stroke

MS

Bypass Surgery

Other

Product - Claims

* Approximately 25 % of claims are declined:

* Diagnosis predates coverage effective date

* Claim is submitted for a condition not covered

* Claim is based on a pre-existing condition

* Claim is submitted within 90-day waiting period for cancer

* Claim is does not met the Illness definition

* Non-disclosure of existing medical conditions

Group CII Success Factors

* Critical success factors

• Clarity in product design – easy to understand

• Competitive plan design and pricing

• Plan sponsor support – endorsement, communication and education

• Integrated component of group benefits package

• Increased access = better spread of risk = more affordable coverage

Current market

* More NEMs - less medical u/w

* More pull from plan sponsors

* Partial payment

* Second payment

* Portability

* Loss of Independent Existence (LOIE)

Questions

?