Hybrid products given short shrift

While some advisors might have a problem recommending hybrid products, an industry veteran suggests that may run counter to their clients’ best interests

The last five years has seen significant turmoil in the US market for long-term care (LTC) insurance coverage.  Rates have risen and leading LTC carriers have left the marketplace. 
Hybrid products – those combining both morbidity and mortality products (Life, LTC and sometimes CI) – have enjoyed tremendous success, with new premiums rising from under a billion dollars in 2008 to close to three billion dollars in 2014.  Variable annuity hybrid products have not been so successful.
Given that the Canadian market sometimes looks to the larger US market for product ideas, is Canada ripe for the growth of hybrid life products?  Perhaps. 
Demographics of the two countries are similar, but product trends are not.  Specifically, LTC is a major health insurance product line in the US, but CI (Critical Illness) coverage is not.  The reverse is true in Canada.  Both LTC and CI are morbidity-based products (risk of getting sick) – and therein lies a potential template for adaptation to the Canadian marketplace. 
A hybrid life product release in Canada which focuses on life (mortality risk) and CI (morbidity risk) could do very well for the same reasons that hybrid life products in the US focus on life and LTC.
There are a number of reasons why hybrid life/LTC product sales have fared well in the US. 
The payment of (typically) single premiums has given actuaries a margin of conservatism in pricing the life and LTC risk together, whereas the conventional LTC market (annual premiums) has suffered from lower interest rates and higher life expectancies after an LTC event.  The latter is a direct outcome of modern medicine prolonging life expectancies. 
Additionally, hybrid life products are a simpler “concept” sale for advisors to present and clients to understand – you pay one (or limited) premium(s) and get a benefit regardless of whether you get sick or die first.
At the end of the day, the US and Canada are two different product markets with similar demographics.  If properly adapted, there could be a viable place in Canada for hybrid life products – as long as product design is streamlined and easy for consumers to understand.

Ray Digby is an actuarial graduate of the University of Waterloo, based in Livonia, Michigan.