In the US, chronic illness insurance riders are emerging as an alternative to long-term care insurance riders. Could such coverage find a viable market in the UK, asks Mark Johnson.
Chronic illness riders can be offered with all types of base insurance plans, from whole life and universal life to indexed universal life and variable universal life.
These riders have several price-benefit structures, each of which accelerates the death benefit in a different manner: discounting the death benefit; treating the acceleration as a lien (or offset); or assigning a specific cost of insurance charge.
The cover is also clearly stirring interest among US insurers. According to a 2011 survey by Milliman of the US chronic illness insurance market, 12 of the 43 life insurance company respondents either had issued, or were planning to issue, a chronic illness rider. A further 12 were intending to offer one, and a further six were considering the possibility.
So could a chronic illness product be viable and successful in the UK market? That, right now, is not easy to predict. Clearly, paying for care in old age is and will be an increasingly important issue in the foreseeable future.
People are living longer, the Baby Boomers are moving into their retirement years, and at least 30% of us are likely to need a way to supplement assets should a chronic, incurable illness strike in retirement.
Despite this growing need, asset protection options for older-age individuals are currently limited. Immediate needs annuities require a one-off lump-sum payment, and equity release schemes still suffer from poor press associated with earlier versions of the product.
Chronic illness coverage, if adjusted for UK market needs, could be an interesting niche product, especially for an insurer with an older-age target market such as a specialist annuity provider or a company serving high-net-worth individuals. n
Mark Johnson is business development manager at RGA Reinsurance
