The huge variety of products, special cases, and unique considerations that underwriters face every day make it an exciting but challenging industry to keep up with. Our expert series aims to make it a little easier by providing resources straight from industry experts on the topics that underwriters are facing now.
Critical illness (CI) insurance is an area that life underwriters face that can be complex and involve detailed review to get right. Karen McLeod, Senior Underwriter & Learning Specialist, shares her advice and top tips how to approach critical illness as a life underwriter.
Why is this an Important Topic for Life Underwriters?
It is important for life underwriters that are starting to underwrite critical illness to understand that there is a different focus while underwriting critical illness versus underwriting life insurance. There are key points to keep in mind while underwriting critical illness but the biggest one is that special attention must be paid to the medical history and family history of a proposed insured. This level of detail may not necessarily be as important for life insurance, but it must be taken into careful consideration when underwriting critical illness.
What is the Purpose of Critical Illness Insurance?
Critical illness insurance is intended to replace the flow of funds required to meet financial needs in the event of a critical illness.
What this means is that the insured will receive a lump sum payment if they are diagnosed and survive an illness covered in the plan. They do not have to die, become disabled, or miss work as a result. They just need to be diagnosed. The purpose of this insurance is to cover expenses like mortgage payments, debt repayment, medical treatment and rehabilitation costs during these difficult times.
Similarities and Differences to Life Insurance
Life insurance is distinct in that it is underwriting life expectancy and assessing the risk of premature death. The payment for life insurance is a one-time lump sum benefit that is payable to their designated beneficiary, when the insured person dies.
For critical illness insurance, the focus is on the risk of developing one of the covered serious illnesses. For example, a cardiovascular or cerebrovascular disorder for example. The payment to the insured is a one-time lump sum benefit if the insured person suffers a covered condition (stroke, cancer, heart attack) and survives the required waiting period.
Critical insurance should not be confused with disability insurance. Disability insurance involves underwriting the risk of injury that would result in not being able to work. Benefits comes in as monthly income when the insured is unable to work due to a disability.
In most cases, critical illness underwriting is more conservative than life underwriting. With the medical advances in modern medicine, a person is more likely to suffer and survive a critical illness event than they are to die from it.
4 Key Areas of Focus for CI Insurance Underwriters
There are several key areas of focus and unique considerations for critical illness insurance underwriters:
- Identify applicants whose family history, medical history, occupation or avocation may predispose them to developing one of the covered conditions
- Relate the medical and non-medical history to the covered conditions
- Know the covered conditions, definitions and policy contract wording
- Covered conditions could be as few as 4 or 6 (simplified CI policy), or as many as 25, 40 or even 60 conditions.
Key Guidelines to Assess Risk
Once these key considerations are understood, underwriters should keep these guidelines in mind and use some of these questions to help guide their risk assessment:
- Always ask: Does this make sense? What is the risk?
- Always think incidence: What is the possibility of this proposed insured being diagnosed with one of the covered conditions? Remember that this product covers an insured when diagnosed with a condition, not death or disability - so what are the chances that this person will be diagnosed with one of the covered conditions?
- Always refer to the medical history: Relate the medical history to the benefits that will be covered. For example, DM (Diabetes Mellitus) is not a covered condition, however, the complications of DM may lead to one of the covered conditions (heart attack, stroke, kidney failure, blindness).
- Anti-selection is always a concern for critical illness: The reason is because, in order to make a claim, the person doesn’t have to die. The insured is the one that is the beneficiary, with a lump sum payment in the case of critical illness. The insured may downplay the severity of a medical condition and, as a result, inaccurate or withheld information are all possible concerns. Misrepresentation of facts is also a concern. When people are applying for critical illness coverage, they may misrepresent their true medical, non-medical or family history.
Here are three examples that demonstrate a few of the ways that misrepresentation or non-disclosure may impact assessment and claims:
- If a female has a breast lump and did not declare this on her critical illness application, then she is misrepresenting her history. If that same female then submits a claim for breast cancer 5 months down the road, the likelihood of that claim being denied is high.
- Three weeks prior to the application, an insured saw a specialist and lung capacity testing was completed. The results were found to be extremely abnormal, and the insured was notified. The insured, however, did not disclose the testing or the specialist appointment on the application or during the underwriting process. Should this insured then submit a claim for lung cancer, the claim would be denied.
- If a person with a non-medical history of cocaine abuse, bankruptcy and a suspended driver’s license did not disclose those details, the claim would very likely be denied on the basis of non-disclosure. Cocaine, for example, has known adverse effects that include depression with suicidal behavior, paranoia, convulsions, severe hypertension, stroke, cardiac arrhythmias, sudden death and respiratory abnormalities. Although drug use itself is not a covered condition, the adverse effects of the drug could potentially lead to a covered condition. The proposed insured would be required to be fully abstinent of all substance use (drug and alcohol) for a minimum of 5-7 years, with no driving criticisms and the bankruptcy fully discharged before being considered for insurance of any kind.
9 Pieces of Family Medical History to Look for in CI cases
As you can see, the applicants’ awareness of their personal and family medical history is crucial. There also must be clear definitions throughout the application process.
To structure your review of the family history:
- Focus on the age at onset of the illness in other family members – not the age at death.
- Early diagnosis in a family member (before age 60) is always significant.
- Credits are possible for CV (cardiovascular) disorders if family history occurs at age 50 and up. As well as those with normal lipids, BP, build and EKG at age 50 and up at time of application.
- For a family history of cancer, credits may be available for applicants age 50 and up with favorable regular surveillance.
- Family history of one or two related or unrelated cancers may require a rating or exclusion.
- The same cancer history in 3 family members would be a decline.
- Surveillance is important. The rule of thumb for surveillance especially for breast, ovarian and colon cancers is 10 years. That means, for example, that if the mother was diagnosed at age 52 with breast cancer, the female applicant should start routine surveillance (mammogram) at age 42. If not, an exclusion would be added, along with the recommended rating (likely +50). The exclusion (not the rating) may be reconsidered with a normal mammogram.
- Neurological disease in an immediate family member is always significant regardless of the age at onset.
- Covered conditions impacted are Alzheimer’s, Parkinson’s, and Motor Neuron Disease. They may require a rating or exclusion depending on the age of the applicant and company philosophy.
Red Flags for CI Underwriters to Monitor
A family history that includes any of the following is a cause for concern when CI underwriting:
- Kidney Disease (PKD)
- MS (Multiple Sclerosis)
As an underwriter, when reviewing an application, you must have a full understanding of the product you are underwriting. Each product must be reviewed wearing a ‘different hat’. Beware of the diseases that may not necessarily be a covered condition, but complications of that disease (i.e. diabetes) may be covered. Proposed insureds may downplay their history – be sure to do your due diligence and ensure you fully understand the insured’s history.
3 Takeaways for Underwriting CI
Don’t be afraid to obtain additional information. Always ask yourself “does this make sense?”. If nothing else, remember these three key takeaways:
- Family history: Watch for the age at onset and if any personal surveillance has been completed (if within 10 years of the family member’s age at onset).
- Product knowledge: Know the product, the covered conditions and be aware of other disease/disorder’s complications that are a covered condition.
- Get answers: If something doesn’t make sense, you need to dig a little deeper.