What shapes critical illness products

00:00:03:

00:00:17: Why critical illness insurance is becoming more relevant in today's healthcare and income protection landscape, what it actually covers.

00:00:25: And how insurers can approach CI product development to create the most value for policy holders and their own portfolio?

00:00:33: Welcome to RePlay by Hannover Re!

00:00:35: I'm your Susanne Loomis.

00:00:43: This podcast is for general information only, no professional advice and a subject to change.

00:00:48: You can find the full disclaimer in our show

00:00:50: notes.

00:00:54: Tim is Head of Protection at Hannover Re UK Life Branch in London and he works with insurers to develop and improve protection products, especially in the area of critical illness.

00:01:05: And he brings deep market insight and practical experience.

00:01:09: so what should we know about Critical Illness Insurance?

00:01:12: Could you walk us through what it covers how its typically designed?

00:01:18: Sure, so critical illness is a product that's designed to pay out.

00:01:23: when a policy holder is unlucky enough to be diagnosed with the condition has significant impact on their life.

00:01:29: So things like cancer heart attack stroke in general it's.

00:01:35: They may be sometimes used for that and we can get into a bit later.

00:01:40: But it's often aimed at covering the costs you might incur from having serious illness, so taking time out of work in order to recover making adaptations your home or paying carers.

00:01:53: The products changed alot over years.

00:01:55: So they started quite basic but more conditions have been added And we've changed definitions as well In more developed markets, so as you mentioned I'm working in the UK.

00:02:09: We have often more than one tier of product.

00:02:13: So there'll be basic products that just cover the larger illnesses That people are more likely to be diagnosed with but then more comprehensive products things like including total permanent disability and the product maybe partial payments for less severe conditions And also products that cover children's critical illness as well.

00:02:33: Okay, thanks Tim.

00:02:34: That really helps lay the groundwork and you have worked with critical illness insurance not just from a technical standpoint but with a deep understanding of how it impacts real lives.

00:02:46: can you recall a moment or experience that made this topic feel especially personal for you?

00:02:52: Yeah so I know from personal experience the stress that's caused by somebody close to you suffering And there are a lot of hidden costs associated with this, so childcare is good example.

00:03:06: A lot families out at the moment who are balancing child care and work often both parents working And if one of those parents is taken out with illness, needs to take timeout to recover then the costs of childcare needed consume mount up.

00:03:22: So alleviating that sort financial burden can take away a significant source of stress at times naturally going to be difficult for everybody concerned anyway and it allows people really focus their energy on important things supporting family.

00:03:37: Yeah, of course.

00:03:38: You're glad for everything you don't have to worry about when dealing with a serious illness and the term critical can be subjective.

00:03:47: how do we define what qualifies as critical illness?

00:03:50: And how consistent is that definition across markets?

00:03:54: yeah so this is actually one of the most difficult areas.

00:03:59: Everybody probably has quite a clear picture in their head of what we mean when we say are critical illness.

00:04:04: Yeah, so something that's life-changing Something is quite stressful debilitating perhaps life threatening.

00:04:11: However, it's surprisingly difficult to actually define that when it comes to an insurance policy without on the one hand excluding things That you would want to cover so something is quite serious or On the other hand paying out claims where things are Actually not that serious at all and somebody doesn't really need that money.

00:04:29: And the concern there is it becomes a bit more almost like a lottery product where you're getting payment without that insurance need.

00:04:36: A good example here, skin cancer.

00:04:38: so as huge range of how serious condition can be You have very serious skin cancers.

00:04:44: It's hugely life threatening and life changing but also have skin cancers are easy to treat.

00:04:51: Perhaps go into hospital for procedure over an afternoon then your back at work next day.

00:04:57: Designing the product so that it pays out in one of those situations, but not the other is a challenge we face with them.

00:05:04: So can you tell us more about some particular challenges insurers are dealing with when it comes to designing critical illness products?

00:05:12: Anticipating changes in diagnostics and treatments into the future... ...is one of our biggest challenges.

00:05:21: So these are long-term products.

00:05:23: They might last twenty, even forty years and we have to anticipate changes that are going to happen... ...to how frequently those conditions are diagnosed.. ..and effective the treatment is going for them over time.

00:05:38: If diagnostics are going to increase significantly in the future, then we need to adjust our pricing.

00:05:43: To make sure that we're covering that.

00:05:45: if treatments are very likely to mean a condition becomes less serious than we want design product allow for it.

00:05:54: So when thinking about long-term products like this We really have to think through at the product design stage.

00:06:01: There's a lot of changes happening in the market today, in health care landscape that are impacting us here.

00:06:08: A good example is some blood tests being developed to detect cancer.

00:06:12: now they're not at level yet where could be considered diagnostic and trigger payout from critical illness.

00:06:19: but these technologies getting better all time it likely far more cancers will picked up this method.

00:06:28: another challenge genetic testing.

00:06:30: we see more and more people getting more information about their own genome, therefore the associated risks that they have with it.

00:06:38: This leads to an asymmetry of information between a policyholder or insurer.

00:06:44: People will know when at risk for a condition and can buy a critical illness product which covers this.

00:06:51: So there is potential for anti-selection.

00:06:56: Yeah, it's clear that comes with a lot of complexities and being aware or working with someone who understands them can make all the difference.

00:07:05: So let us look at opportunity side.

00:07:07: why should critical illness be part of portfolio?

00:07:10: What additional value does offer beyond product diversification?

00:07:15: CI can be very complementary to life cover.

00:07:18: It's quite common that policyholders will buy CI policy alongside a lifecover, and so there is real opportunity for insurers to upsell critical illness cover on top.

00:07:30: And if somebody interested in CI & Life then it's not uncommon that advisors often place both of those covers with one insurer.

00:07:38: That means only needing to go through one underwriting journey and also can be cheaper by two products.

00:07:45: That can mean that offering CI can increase your potential target market.

00:07:50: And the other thing is it's an opportunity to differentiate your product in some way from your competitors.

00:07:55: with life cover, with a mortality product It's very difficult to innovate with the product you pay out.

00:08:01: You know if somebody dies and that's pretty black-and-white thing Whereas if you have critical illness then you can adjust The product you can cover things at.

00:08:09: Some of your competitors aren't covering

00:08:14: Yeah.

00:08:14: That makes sense, especially when bundled with live cover.

00:08:17: it opens up new opportunities.

00:08:20: but there's also the issue of rising health care costs.

00:08:23: how can CI help people manage expenses?

00:08:26: When they need access to advanced treatments?

00:08:29: yeah.

00:08:29: so that certainly something we are looking at.

00:08:32: So in my market In The UK We have a public health system But the gap between treatment options available on the public health system, and possible treatments available to those who are able to pay privately is actually growing quite significantly.

00:08:47: It takes a long time for something to be approved in the UK for payment under the National Health Service.

00:08:53: For example there's lots of cancer treatment these days that might have been best treated by an individual but not available to them through the Public Health System.

00:09:02: And the same is true with health insurance.

00:09:05: You know, health insurance policies can lag behind the pace of developments in healthcare and critical illness as a long-term product that can guarantee you a lump sum at that point that you get diagnosed for something and therefore fund advanced treatment should need arise based on whatever's available at time diagnosis.

00:09:24: Yeah!

00:09:25: When we talk about serious illnesses cancer often top of mind.

00:09:30: With a fifty percent chance of getting cancer in your lifetime, it's something that many people will face.

00:09:35: How does CI help with the less visible often underestimated cost that comes with a cancer diagnosis?

00:09:42: I mentioned the childcare example earlier and that is very significant examples for an additional costs coming from having illness.

00:09:51: but there are often smaller costs that really do add up.

00:09:55: So the cost of travel to appointments.

00:09:58: in the UK you have to pay for hospital parking And if you have say five appointments a week over a significant period then that can really add up too A lot.

00:10:06: Yeah, but there's also things like higher energy bills To heat your home If you're at home for longer periods while you recover rather than being at work convenience foods if cooking is no longer easy.

00:10:17: so yeah all these things Can't really add to the burden of having a serious illness?

00:10:23: Yes absolutely.

00:10:24: And I'm curious, Tim.

00:10:26: Can you share a situation where your team helped solve a real challenge in developing or pricing a CI product and what did that look like?

00:10:35: So we were involved in developing a product for the UK market, which was more focused on prognosis.

00:10:41: The prognoses of the patient rather than the diagnosis.

00:10:45: A great example here is prostate cancer.

00:10:48: A lot of men will get prostate cancer at some point during their life but many actually would not need treatment for it.

00:10:56: It can be something that's managed and lived with doesn't have serious impact on your life or require surgery.

00:11:02: So by focusing on the prognosis rather than the diagnosis in this example, The Need for Surgery we can ensure that product pays out when it's really needed.

00:11:12: By patient but control costs so premiums aren't too high because its only paying out and those circumstances.

00:11:19: And are there some lessons to standout either from this or another situation?

00:11:24: A critical illness policy is often quite a complicated product.

00:11:29: You're trying to define illnesses and you need to use language in doing that, but it's not necessarily so accessible for the general public.

00:11:38: So one thing to really bear in mind is try make your products as simple as possible.

00:11:44: It's important to ensure that advisors particularly and policymakers understand what they are buying.

00:11:52: Another thing when we're developing products is, We learn an awful lot from the claims assessment process.

00:11:57: From an existing product.

00:11:59: it really helps to inform our definitions.

00:12:02: for example if we have a claim come in and we feel like yeah this Is somebody that is clearly suffering with something That's life changing illness but unfortunately It doesn't match any of the definitions on The policy then we can use that as A trigger To help us develop the product further ensure.

00:12:22: Thank you, that's really interesting.

00:12:24: So for primary insurer is thinking about offering CI products where it the best place to start conversation?

00:12:32: Well I would say have a discussion with your local Hannover Re contact.

00:12:35: I probably would say that, but globally we have a wealth of expertise in CI.

00:12:40: So we write CI and a lot of major markets globally And we really do pool the expertise.

00:12:46: so if there's an insurer That is interested In bringing that expertise to their local market perhaps critical illness isn't something that's sold widely in The Market.

00:12:57: then We can bring what we've learned globally?

00:13:05: Yeah.

00:13:05: And what's Hannover Re's approach to CI?

00:13:08: We have a deep understanding of the risk in the UK, we have a research team for example who spend a lot their time thinking about the rates of diagnosis and all these conditions how that is likely change into future so we can really understand the risks ourselves And part of that is horizon scanning, anticipating these trends in diagnosis and treatments.

00:13:31: Making sure those products are fit for the future.

00:13:34: We also really have an enthusiasm to innovate and a client-and consumer led approach.

00:13:39: So with the recent product development that we've done in the UK, We have been spending significant amount of time speaking to the advisors who are going ultimately sell this product... To understand what is it actually appealing for their customers?

00:13:52: And What would make them choose our products over one of our competitors.

00:13:56: Thank you Tim!

00:13:57: That was very insightful.

00:13:58: Thanks for having me.

00:14:00: So today.

00:14:01: we talked about how critical illness insurance is more than just about replacing income.

00:14:05: It's about enabling policyholders to focus on what matters most when life is disrupted.

00:14:11: We touched upon the challenges in developing CI products and talked some of the opportunities they offer for primary insurers.

00:14:18: Thank you for listening to RePlay by Hannover Re.

00:14:21: We hope you found this conversation helpful and don't forget to subscribe for more episodes, leave us a review and stay connected with Hannover Re on LinkedIn!

00:14:29: Until next

00:14:55: time….