TAL is calling for a time limit to be placed on ‘living benefit’ claims, and a greater recognition of level premiums, to help ease upward-trending insurance costs.
Responding to the Financial System Inquiry’s (FSI) Interim Report, TAL has expressed concerns about the ongoing affordability of life insurance, pressing for two key changes.
First is a recommendation that insurers be able to place a time limit on TPD and income protection claims. While TAL has not specified an exact time-frame, it argues that many insurers are experiencing an increase in claims for events that occurred up to ten years earlier. In some instances, the claimant has long since ceased work, meaning the benefit is not being used in the way originally intended.
According to TAL, ‘late notified’ claims, that is claims that are submitted many years after the claimable incident has occurred, have potentially harmful implications for life insurers’ costing models.
“That’s because these unaccounted for long dated claims make it harder for insurers to adequately calculate their ‘incurred but not received’ reserves and capital needs,” explained TAL Group CEO, Jim Minto.
‘Late notified’ claims are also difficult to resolve quickly
Mr Minto said this results in higher premiums for disability cover, because insurers are legally required to set aside money for the ‘incurred but not received costs expected for such claims, and therefore need to recover those costs.
‘Late notified’ claims are also difficult to resolve quickly, because of a lack of evidence that can be used to determine what the customer’s condition was at a much earlier date.
TAL argues that, owing to a 2001 High Court decision which found that insurers cannot reject a claim submitted outside a specified timeframe, the problem of ‘late notified’ claims can now only be resolved by the Government amending the Insurance Contracts Act. The insurer has called on the FSI to consider legislative amendment of the Insurance Contracts Act so that a timeframe can be applied to ‘living benefit’ claims.
The idea of restricting the period in which a policy holder can make a claim was first floated publicly by the Financial Services Council in April 2014, when it called for a seven year time limit on group disability claims (see: FSC to Lobby for Group Claims Time Limit).
The second recommendation made by TAL in its submission to the FSI is for greater recognition of the “affordable” level premium pricing method.
“Consumers are continuing to voice concerns about rising costs and pressures of manage their home budget. We have found that while most people choose stepped premiums for their life insurance which rise with age, they are overlooking level premiums which stay the same,” Mr Minto said.
“Although level premiums initially start higher than stepped premiums, they can provide households price certainty for the future because families don’t have to find extra funds each year.”
Consumers are continuing to voice concerns about rising costs and pressures of manage their home budget
TAL is calling for minor changes to the regulation of insurance premiums, to help life insurance companies make level premiums more attractive to customers.
Specifically, TAL has recommended that ‘…the requirement for a minimum termination value on Long Term Risk business be optional for policyholders individually, on an ‘opt out’ basis, in order that the provision of level premium risk products be more affordable for a greater number of Australians.
‘This would allow product designs to emerge for long term risk where customers have the right to choose an alternative product. Alternative designs may include the provision of a paid up value when a policyholder discontinues, still entitling them to receive an ongoing benefit albeit at a lower level.’
The submission also recommends that policies sold to people on benefits or fixed incomes such as a pension should preferably be level premiums only.
Mr Minto said level premiums are comparable to fixing mortgage rates, which allow for better household budgeting and planning.
“Australians are familiar with fixing their mortgage rates and locking in utility rates to manage costs, but are more reluctant to fix their life insurance premiums which, in the long run, usually end up cheaper overall.”
TAL has also recently signed the Australasian Consensus Statement on the Health Benefits of Work. Click here for more.
“…..Consumers are continuing to voice concerns about rising costs and pressures of manage their home budget. We have found that while most people choose stepped premiums for their life insurance which rise with age, they are overlooking level premiums which stay the same,” Mr Minto said.
…… Mr Minto said level premiums are comparable to fixing mortgage rates, which allow for better household budgeting and planning…..”
I am a Level Premium advocate, have been for over 10 years…. however, Level aint usually Level …. Your commentary is misleading Mr Minto!
1. MLC rerated their entire book after they bought Aviva – no this isn’t increasing premium with age, but in the clients mind an increase is an increase and this two tier change was a considerable hike never the less… so in best interest do we review the clients that are on Level premiums too. That was not the intention when the coverage was set up.
One Path rerated their entire book – Asteron even increased Level Premiums recently after a campaign to write more Level …. BUT they didn’t increase existing business on the books – well done Asteron. One step towards keeping your book intact.
2. TAL – only has death cover with a lifetime level premium… little toe in the water may I suggest.
3. Only Clearview and CommInsure have a true level premium with no age increase on CPI – but will they too rerate in future! I’d be ok with an increase in rates for new policies, as Asteron have recently put forward.
So in my humble opinion – In terms of IP alone KISS – the industry needs to stop introducing rarely claimed upon clauses to climb over each other periodically on the comparator software – get back to basics and have a fairdinkum IP cover Total/Partial and cover to age 70 indexed claim with a TRUE LIFETIME Level premium – set up with a decent Commission 60initial/30 ongoing – the industry would present this with confidence and the numbers of clients who buy will do so on a long term/lifetime basis.
Best Interest Duty will ensure that this scenario is put up to the client EVERY time so its a given that it would succeed as its concept is simple.
= Higher % of insured people – insurance with certainty – policies that stick – long term affordable insurance – and actuaries that can predict outcomes more closely – fewer people on the public purse when insured or sick.
Lets see which insurer has the foresight to take the concept on – I would be interested to hear the opinion of others in the industry. And I am willing to take this on as a concept with an insurer who is game!
Sorry a little rushed with this comment. I could write a thesis on this and other aspects of this article alone.
Level or Not – I agree 100%. I’m sick of so-called industry leaders complaining about the game they’re playing and not making any real attempt to change the rules. All the while it’s somehow the consumers or advisers who are at fault? What I would like to know is if claims are going to have a time frame attached, does that mean the life company will refund the premiums if the client is outside that time frame? I bet no! If the industry is going to go down this path, then they should be required to do more to educate the client on what they have and can claim for with each annual renewal.
Yes Mark, if time frames are attached – what does this mean… that a claim cannot be lodged after a certain period of time?
I have had an instance recently (and its not an isolated case) where the adviser told a client he would not be paid as the operation would not incapacitate him for long enough (30+ days) but he had a claim for ongoing partial for a month he didn’t lodge and was none the wiser and rushed back to work to his own medical detriment requiring more time off later. Needless to say when he was referred we lodged a claim which was paid.
So although I accept that limiting time for claims lodgment may assist insurers with their planning for claims, where does this leave the ill advised who are out of pocket after paying for coverage for years and years!
I put it to the insurers, that if advisers actually had relationships with their clients, as they ought to for the ongoing commission they are paid, the client would call them to discuss situations and they can be there when they should be for the client, and then there would be many many more claims lodged – and satisfied clients who don’t feel left out in the cold by their advisers and policies which “they think” don’t pay when required.
The industry does not need more complexity in product offering (which is the bulk of the issue with rewriting out there…insurers scrambling for higher ratings justifying advisers’ recommending switching policies) it needs far less complexity than is out there now and some certainty with Good Basic wording and TRUE level premiums for the life of the policy.
Hmmmm
WOL policies come to mind… seems they had benefits the entire market walked away from to the detriment of the nation as a whole.
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