Care Needed in Pooling the Risk

 

 

While the key to a fair and equitable insurance system is based on the risk pool being carefully managed, industry specialists are also watching the introduction of assisted suicide laws and the impact this could have on the insurance sector.

Pool Safety and Underwriting Risk in Times of Crisis

ClearView MD, Simon Swanson, writes that if policyholders are going to stay in the life insurance pool for anywhere from 10 years to life, insurance companies must ensure everyone is making a fair and equitable contribution…

 

The Covid-19 pandemic has raised legitimate questions about the efficacy of underwriting standards to protect existing policyholders from unhealthy or at-risk lives potentially jumping into the pool.

The issue of who’s allowed into the pool is not new. It is as old as life insurance itself and is critically important at all times, not just during a global health crisis.

Life insurance is fundamentally about accurately assessing, pricing, and pooling risk.

Risk pooling is a foundational principle. By pooling the resources (premiums) of a large number of people with comparable risks, insurers can spread the risk and impact of claims more evenly.

At a basic level, the more people in the pool the better. As an insurer, we want as many Australians as possible to access appropriate cover, which is why ClearView unashamedly supports the commission model.

Commissions, as opposed to advice fees paid by the client, make it easier for people to get life insurance advice. It lowers the barriers of entry into the pool.

However, insurers also have a responsibility to protect customers by ensuring everyone in the pool is making a fair and equitable contribution. That does not mean every policyholder pays the same premium. Those that represent a higher risk must contribute more than lower risk lives.

For death and trauma cover, risk pooling is a relatively straightforward concept and the Covid-19 pandemic has not changed our approach to underwriting risk here.

This is because pandemic threats have historically been relatively short-lived and the associated death toll among working-age people (those most likely to hold cover) has been relatively low. (The average age of a ClearView LifeSolutions policyholder for death cover is 45.)

The elderly and those with pre-existing medical conditions are more likely to succumb to a virus but they typically do not hold meaningful levels of life insurance, if they have cover at all.

From a medical perspective, there is a mix of healthy lives and unhealthy lives in any pool, and actuaries can reasonably predict the probability of people in that pool dying within a given timeframe. Through underwriting, insurers can decline some applications and apply a higher premium to unhealthy lives to improve the overall health of the pool.

However, when it comes to income protection insurance, insurers are assessing in equal weight both financial risk and morbidity.

Risk pooling is potentially less effective because people can theoretically anti-select; that is apply for cover – based on known information – to gain a financial advantage. For example, if a person suspects they are about to lose their job and may struggle to regain employment, they can apply for income protection cover, based on their current salary. This type of behaviour can distort the risk in a pool. While this is also relevant for mortality underwriting its impact is far more significant for income protection insurance.

As such, the economic impact of Covid-19 is an additional consideration for underwriters assessing IP and TPD applications. While a person’s income, occupation and industry have always been major factors, there is a heightened focus on this, especially for new clients working in sectors hit hard by job losses and reduced income such as retail, hospitality and travel.

To be clear, ClearView LifeSolutions has no specific exclusions for claims arising from a pandemic event and has no plans to introduce a pandemic exclusion for new business.

ClearView life insurance policies also provide worldwide cover, meaning all customers are protected should something happen to them while they are out of the country.

In the majority of cases, new applications will be assessed as per usual.

However, for some income protection and TPD applications, underwriters may ask additional questions to fully understand an individual’s unique situation and determine if cover can be offered under standard terms.

For the applications in suspense, some customers may be required to reconfirm the information they previously provided is still true and accurate.

This may result in acceptance, modification of policy terms or a decline in circumstances where income is very likely to be impacted by Covid-19.

Our aim, given these are uncertain times, is to ensure that sums insured accurately reflect a person’s income earning ability. Prudent risk management protects all stakeholders.

Financial advisers also have an important role to play right now in ensuring that their clients maintain cover.

To support households facing severe financial stress, ClearView LifeSolutions has a built-in benefit to waive premiums for up to three months for customers who have involuntarily lost their job for a range of reasons including retrenchment, redundancy or their employer going into administration or liquidation.

Customers can also request for their cover to be placed on hold for up to 12 months.

For more information, speak to a ClearView Business Development Manager.

Simon Swanson is Managing Director, ClearView Wealth Limited.

Is Voluntary Assisted Dying the Same as Suicide?

When 61-year-old woman passed away in a Bendigo nursing from metastatic breast cancer, one month after Victoria’s assisted dying laws came into effect, she was acknowledged as the first to use the state’s Voluntary Assisted Dying Act.
This article from respected industry contributor, Jeffrey Scott, explores the potential minefield that may now emerge when considering the meaning of ‘assisted dying’ in relation to life insurance policy suicide clauses…

 

On 5 December 2017, Victoria was the first State in Australia to pass legislation permitting voluntary assisted dying (1). This legislation came into operation on 19 June 2019.

This article examines the implications of Voluntary Assisted Dying Act 2017 on life insurance policyholders in the State of Victoria. However, states such as Western Australia, Tasmania, and Queensland have also adopted their own assisted dying laws.

What are the criteria to access voluntary assisted dying?

The person must be at least 18 years old, an Australian citizen or permanent resident, and have lived in the State of Victoria for at least 12 months. The person must have an incurable disease, illness or medical condition which is causing intolerable suffering, and is expected to cause death within six months, or is a neurodegenerative condition that is expected to cause death within 12 months.

Process: how can voluntary assisted dying be performed?

Under the legislation the approval and voluntary assisted dying process is quite regimented.

The person suffering the incurable medical condition must first apply to a medical practitioner with at least five years post fellowship experience (GP or specialist), and who must be an expert in the medical condition the patient is suffering from.

Within seven days of the request, the medical practitioner must inform the patient if they are available and willing to assist with the voluntary assisted dying process. The medical practitioner must inform the patient of the various options and alternatives prior to determining eligibility. These include:

  • Diagnosis
  • Prognosis
  • Treatment options and likely outcomes
  • Risks of taking the prescription for the purposes of death
  • Confirmation that the patient has the right to change his or her mind at any time if they do not wish to undergo the voluntary assisted dying process

The medical practitioner must also explain to the family members of the patient each of the steps of the voluntary assisted dying process.

The medical practitioner must ensure the patient has the decision-making capacity to make an informed decision, understands the information given to them, and they have not been pressured or coerced into the voluntary assisted dying process.

The patient must then make a signed declaration in the presence of the two witnesses and the co-ordinating medical practitioner. The witnesses must be at least 18 years old and cannot benefit financially from the patient’s death or be a beneficiary from the patient’s estate. No more than one witness may be a family member of the patient. A contact person must also be nominated by the patient.

The contact person must be at least 18 years of age and has the responsibility of returning any unused or remaining voluntary assisted dying substance to the dispensing pharmacy within 15 days of the patient’s death. The contact person cannot be one of the witnesses of the signed declaration.

The voluntary assisted dying substance must be prescribed by a medical practitioner and dispensed by a pharmacist. The voluntary assisted dying substance may be a poison, controlled substance, or drug of dependence prescribed under the Act for the purposes of causing the patient’s death. The substance must be stored in a locked box by the patient after it is dispensed by the pharmacist. The pharmacist must inform the patient how to administer the prescription and how much will be necessary to facilitate the assisted dying process.

Who can administer the prescription to the person?

There are only two people who may apply for a voluntary assisted dying permit under the Victorian legislation: the patient and the patient’s medical practitioner. The two types of voluntary assisted dying permits are:

  • A self-administration permit
  • A practitioner administration permit

A practitioner administration permit is only allowed if ‘…the person is physically incapable of the self-administration of digestion of the voluntary assisted dying substance.’(3)

This means that in most circumstances an individual who undertakes voluntary assisted dying will have self-administered the prescription to end their life.

Suicide exclusions

Most life insurance companies have clauses in their life insurance contracts that exclude suicide, normally for either the first 12 months or 13 months from policy commencement, but in particular circumstances for the duration of the contract.

The term “suicide” is rarely defined in either the Product Disclosure Statement (PDS) or the Policy Document. In these circumstances, the definition of suicide reverts to the common meaning of the term utilised in Australian society. Thus, it reverts to the definition contained within the Macquarie Dictionary(4), where Suicide is defined as:

  • Intentional taking of one’s own life
  • Someone who intentionally takes their own life
  • To kill oneself intentionally

In most circumstances, based upon the fact that under the Voluntary Assisted Dying Act 2017, the life insured will be administering the voluntary assisted dying substance to themselves, it is possible that the life insured has, ‘…intentionally taken their own life’ and committed suicide.

Depending upon the duration of the suicide exclusion contained in the policy document (12 months, 13 months, or permanent), it may preclude the life insured’s beneficiaries from receiving any benefits under the contract.

What is the chance of this occurring?

There are no statistics in relation to the number of Australians who suffer a terminal illness each year, but as a proxy there were 77,369 hospitalisations for palliative care in 2016-2017(5).

Palliative care is intended to ‘…improve the quality of life of patients with an active, progressive disease that has little or no prospect of cure,’6 and is also referred to as ‘hospice care’ or ‘end of life care’.(7)

It would be rare for a person to be symptom free when they purchased a life insurance policy and then suffered a terminal medical condition within 12 months of purchase. With that said, this author is aware of two individuals who died from terminal medical conditions within 12 months with no previous medical history: one person who died from motor neurone disease within nine months of initial diagnosis, and another person who died from Stage 4 cancer that metastisized to their bones within nine weeks of the initial cancer diagnosis.

Do life insurance companies need to change their definitions?

Where the patient (life insured) self-administers the voluntary assisted dying substance that results in their death, it will be a suicide. In many circumstances, though, life insurance policies will pay a terminal illness benefit if particular circumstances occur prior to the life-insured’s death.

Most life insurance policies have a very specific definition of terminal illness where these criteria need to apply:

  • Two medical practitioners much each certify in writing that the life insured has an injury, sickness, disease or disorder that, despite reasonable medical treatment in the life insured’s circumstances, is likely to result in their death within 24 months from date of certification
  • At least one of the medical practitioners is a specialist practising in an area related to the life insured’s injury, sickness, disease or disorder.

The ‘good news’ is that in order to access the voluntary assisted dying process, the patient must have less than six months to live, or less than 12 months to live for a neurodegenerative condition. The ‘bad news’ is that the patient is only required to receive approval from one medical practitioner, not two, in order to access voluntary assisted dying. This results in different requirements to qualify for a terminal illness benefit under a life insurance policy in comparison to accessing voluntary assisted dying (one specialist medical practitioner).

Regrettably if the life insured has not submitted the medical reports to the life insurance company prior to their death to prove that they were suffering a terminal medical condition (two medical practitioners, one of which is a specialist), then the policy will be assessed as death claim. As mentioned previously, if the life insured administered the voluntary assisted dying substance to themselves then this will be assessed as a suicide claim.

Summary

If a client is contemplating the voluntary assisted dying process in the State of Victoria, it is very likely that they will qualify for a terminal illness benefit payment under their life insurance policy, but it may be necessary to obtain additional medical certification in order to meet the policy terms.

If the client fails to provide appropriate medical certification to the life insurance company proving terminal illness prior to undertaking a voluntary assisted dying process, then they may be precluded from a death benefit under the suicide exclusion where they have self-administered the voluntary assisted dying substance.

References

  1. Voluntary Assisted Dying Act 2017 (Victoria) – No. 61 of 2017 [Assented to 5 December 2017]
  2. Canberra Times – voluntary euthanasia
  3. Brisbane Times – Assisted dying law
  4. s46(c)(i) VADA 2017 (Victoria)
  5. Macquarie Dictionary Publishers 2018, Pan Macmillan Australia Pty Ltd, Sydney, Australia.
  6. Australian Government – Australian Institute of Health and Welfare – Palliative care services in Australia Web report Last updated: 22 May 2019 Author: AIHW.
  7. Palliative Care Services
  8. Ibid.
  9. Ibid.

Jeffrey Scott originally contributed this article to the Riskinfo Adviser Focus series in August 2019 as a freelance writer. He was subsequently appointed MetLife Australia’s Head of Advice Strategy in September 2019.

The information provided in this article is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account any person’s personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you seek appropriate legal, tax, and other professional advice. All statements made in this article are made in good faith and the author believes they are accurate and reliable. The author does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this article and does not accept any liability for any error or omission in this article or for any resulting loss or damage suffered by the recipient or any other person.

 

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