Critical Illness Industry Holds Many Opportunities

Alex Zaidlin

Studies indicate that we are living longer today than we were 50 years ago due to technological and medical advancements. Diseases and conditions that wereconsidered fatal in the past can now be treated. Cancer and heart attack survival rates are on the rise, and survivors often go on to live for many years after recovery. However, physical and emotional distress at times of illness leaves many people out of work for months. The struggle for financial stability after a serious illness led a South African surgeon, Dr. Marius Barnard, to conceive critical illness (CI) insurance in 1980. In his practice as a surgeon, he observed that many of his patients took a considerable amount of time to fully recover after major surgeries.

The inability to earn income during the recovery period, combined with costly medical expenses, caused them to exhaust their life savings and drove some to bankruptcy. Dr. Barnard’s solution was to create an insurance product that would pay a lump sum to the insured upon diagnosis with a disease or condition covered under their policy. The money would be spent at the insured’s discretion on home care, out-of-country medical treatments or simply to provide for themselves and their loved ones during the recovery period. Today CI is the fastest growing health insurance product in many markets around the world, with over 25 conditions and illnesses covered under a common CI policy. For future actuaries, the CI insurance field offers an innovative and challenging environment with tasks involving research, product design and even marketing of the product.

CI insurance products fall under the living benefits line of business since, unlike life insurance, the lump sum amount is paid to the insured and not to their beneficiaries. Reinsurance companies have had a great part in the development of CI products in recent years. Munich Reinsurance Company of Canada was one of the pioneers in CI insurance business. Benoit Miclette, Living Benefits Vice President and Frederic Jacques, Manager Living Benefits of Munich Re Canada, agreed to comment on the challenges, the successes and the every day work in the CI insurance field from an actuary’s perspective.

Mr. Miclette was first introduced to CI insurance while working on U.S. health insurance products in the mid-‘90s. “The product was then viewed as an alternative, albeit more catastrophic, type of insurance to U.S. medical expense reimbursement products. When I later came back to work in the Canadian market, CI was viewed on this side of the border as an innovative product offering choices to insureds who could find themselves in a precarious emotional and perhaps financial situation following the diagnosis of a severe illness.” His motivation comes from breaking new ground and participating in the creation of products on which limited knowledge is available. “Our products have to stand the test of time and be as valid to claimants today as in 50 years’ time. We help create the box that others may think inside and outside of!” he adds.

However, moving forward requires a good knowledge of the past according to Mr. Jacques. “Sometimes with new products, you have to review conventional thinking. Mind you, the first principles concepts that I have learned from my university years and SOA exams are key in helping me recognize new risks, understand and evaluate them and establish a suitable price for this insurance.” Mr. Jacques also notes that ongoing research is a vital part of his everyday job working with CI products. “We often have to rely on statistical data since we don’t have the luxury of having industry data yet. We amalgamate many sources of statistics: government census, hospital data and research reports from many countries. Using actuarial principles we come up with our expected assumptions, then apply them against our own experience to evaluate their relevance.” Working with a relatively new and ever-changing product like CI poses many challenges for actuaries.

Constant medical advancements present a major challenge in Mr. Miclette’s opinion. “One of the challenges of working in this field is that like with many other health-related products, CI will be affected by the advancement in medicine that will take place in the years to come. The effect may be positive or negative. People are living longer, but will they be healthy during those extra years? Another challenge has to do with innovations. When you’re helping to create the wheel, how innovative can you be today without rolling over the potential insured with too much information or concepts which are too complicated?” When it comes to pricing CI products, the main challenge in Mr. Jacques’ opinion is the lack of experience in the field. “For life products there are many years of credible experience data to guide the pricing process. For CI, the credible experience is not there yet due to the relatively new nature of this product.”

Candidates seeking career opportunities in the CI insurance field should be well-versed in more than just actuarial science, according to Mr. Miclette. “Finance, economics and marketing to name a few, are all subjects that today’s actuary should invest time in. Having the ability to communicate clearly to actuarial and non-actuarial individuals is the key to gaining the acceptability and recognition as experts in our own field. Let’s not forget having hobbies requiring skills outside of math and computers.” Mr. Jacques sees a good candidate as someone who is innovative and computer savvy. “A well-rounded actuary must be open to new concepts, have good technical skills and be willing to learn. They must understand their findings and be able to communicate them in a non-actuarial language to their management, clients and co-workers.” According to Mr. Jacques, communication skills are necessary to succeed . “communication is definitely a big part of being successful in the business. Whether it is in a written report, a meeting or presenting to clients – communication is a skill one must work on.”

It is not surprising that CI insurance gained great popularity in many major world markets. The concept of ensuring financial stability for the insureds and their families in a case of a serious illness brings peace of mind to many people. “The most popular question I get asked once the client understands the concept of the CI product is, “Where can I get this product?” adds Mr. Miclette. In the coming years, CI actuaries would like to see more CI products in the market. They will also invest in researching and collecting information regarding serious diseases and conditions to assure better understanding, and therefore, fair pricing of their products. There is no doubt that this growing and innovative field will have many exciting and challenging opportunities to offer future actuaries around the world.