The Marketplace for Critical Illness Coverage

1. 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: jerry_in_metairie@msn.com

2. Introduction 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 AGENDA

3. FACTS • 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

4. 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.

5. 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.

6. 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.

7. 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 tissue that could result in death.

8. World Growth • Concept developed by Marius Barnard • Introduced South Africa in 1980s • United Kingdom • Japan • Continental Europe • Australia • Canada • Ireland • United States

9. 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)

10. 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

11. 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

12. Illnesses Types of Critical • Emphysema (before age 65) • Heart Valve Surgery • Severe Burns • Terminal Illness

13. U.S. Marketplace Trends • Medical technology is keeping people alive longer • The concern today is not dying too soon – it’s living long

14. 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

15. 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

17. LIFE INSURANCE INDUSTRY TRENDS • 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

18. 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

19. 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)

20. 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.

21. 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 work. • 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.

22. 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

23. Essentials • Essential ingredient of a life insurance product = probability of death (qx) Life Insurance Product • Investment • Expenses • (qx)

24. Essentials • Essential ingredient of a C.I. insurance product = probability of diagnosis of a critical illness (ix) Critical Illness Product • Investment • Expenses • (ix)

25. Essentials • 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)

26. 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.

27. 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.

28. Product Design Options • Premium Guarantees • Acceleration Amount • Pre-Existing Conditions • Maximum Age • Maximum Face Amounts • Reduced Amounts

29. Family/Individual Perspective • Replace reduced earnings • Pay off personal debts • Cash for medical treatment or associated expenses • Education

30. 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

31. C.I.I. Product Critical Illness Insurance is Flexible • Life • Health • Disability • Other products

32. C.I.I. Global Perspective • South Africa • Concept – Marius Bernard • 1983 – introduced – Abbey Life

33. 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

34. 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

35. C.I.I. Global Perspective • Developing Asian Markets • 1985 Singapore • 1988 Hong Kong, Malaysia • 1990 Taiwan, Thailand • 1992 Indonesia

36. Total Dread Disease Policies 1997 Net Premiums written by U.S. Companies N = $5,161,545,733

37. United States C.I. Marketplace Individual Life Arena

38. United States C.I. Marketplace Group Health Arena

39. 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$

40. 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$

41. 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

42. Open Forum – Issues/Concerns Now ask yourself the question: Is there a market for C.I.I.?