Advances in Medical Diagnosis and Treatment - Risk or Opportunity for Critical Illness Insurance?
Medicine is changing - but what that means to patients and insurers could mean very different things. Even within our world of insurance, the answer will vary by product. Will rapid advancements in cancer diagnosis and treatment mean greater profits for life insurers but losses for annuity carriers? Will earlier diagnosis and microsurgical treatments mean fewer and/or shorter disabilities but lead to skyrocketing medical insurance costs? How can our contracts be designed and structured to take advantage of the opportunities that are inherent in these advances in order to maintain product relevance and mitigate unforeseen risk?
Let’s focus on Critical Illness insurance, a product that pays a lump sum benefit upon diagnosis of cancer, heart attack, stroke and other diseases.The advances occurring today have the potential to both help and hurt our results.
- How It May Help: As survival rates of critical illnesses continue to increase, and consumers face the out-of-pocket costs so often associated with increased survival, consumers should gain a greater appreciation for the financial risks they face and the value of Critical Illness insurance.
- How It May Harm: As medical improvements lead to earlier detection of disease, our results may be affected in a number of ways. Initially, we may experience claims sooner than we previously expected. As diagnostic advances continue, we may incur claims that might never have arisen without them. These advances may ultimately make existing product features less valuable if diagnosis improves to the point of lowering treatment costs.
Our ability to address this risk may vary considerably by market. In the U.K., for example, insurers have both the advantages and disadvantages of having to utilize standardized definitions established by the Association of British Insurers. Whereas some can argue that this creates a level playing field, others may be frustrated by the limitation on carriers to determine what they feel are best practices or what their customers need. In Canada, the majority of Critical Illness sold today is non-cancellable - meaning the coverage can never be cancelled nor can terms or rates be adjusted.
Despite U.S. insurers’ frustrations with having to file products in 50 or more separate jurisdictions, we are not confined to standardized definitions or guaranteed pricing constraints. This has enabled carriers to anticipate and adjust definitions and pricing assumptions. Carriers have the flexibility to add newer, more severe conditions as existing ones fade in relevance as well.
This isn’t just theory: It’s practice. When Gen Re had concerns about the impact of improved cancer diagnostic capabilities on our claims experience in the future, our Medical Director worked closely with our product team and developed policy language that would exclude diagnosis of cancer made purely on a molecular level. This was consistent with both the pricing and intentions of the product. We also understood the risk was far greater for Guaranteed Renewable (GR) than for Optionally Renewable products. Understanding the subtleties in risk associated with various product structures we chose to strongly encourage our clients who market GR products to embed this exclusion, while not requiring the exclusion for optionally renewable products.
The insurance industry does not operate in a vacuum and we must continually reassess our products and assumptions against forces from both within and outside of our industry. The key to success is having a thorough understanding of what the risk is, having the appropriate tools available to address the risk, and knowing how to utilize these tools effectively.