The emergence of ‘community standards and expectations’ as a new benchmark for the behaviour of institutions will lead to a number of changes to the life insurance industry that is likely to have a multi-million dollar impact on policyholders, according to a report from reinsurance consultancy, Retender.
The report – titled The Cost of Consumer Expectations written by Retender Managing Director, Ilan Leas, states that while community standards and expectations is not a legislated term, nor one that is clearly defined, life insurers will be expected to align their business with what consumers expect and not just the letter of the law.
This alignment will result in a number of trends, including greater transparency from life insurers as well as more pressure on them to pay ‘grey’ claims that will put more pressure on the price of life insurance premiums.
“The last few years, culminating in the Royal Commission, has brought to the fore the concept of community standards and expectations. It is clear that insurers will need to make far reaching changes to their business models to cater for this shift,” Leas said.
He added that insurers will shift from sticking with the letter of the law and begin asking the question of ‘Should we do it?’ when making determinations about claims which would have a financial impact.
“…these four words – community standards and expectations – will be a game changer in terms of how claims are going to be assessed…”
“In terms of the impact on price, at its simplest, more claims will be paid which is great for consumers but this naturally comes at a cost for the insurance pool,” he said
The report estimates the price impact may be around two to five percent for one-off costs, depending on the product line and distribution channel, and a trend cost between two to three percent per annum.
“It’s easy to overlook that the life insurance industry currently pays out more than 90 percent of claims but these four words – community standards and expectations – will be a game changer in terms of how claims are going to be assessed in the system,” Leas said.
These changes will deliver improved customer outcomes, according to Leas, however life insurance, consumer groups and other decision-makers would need to understand the unintended consequences of this coming shift.
“The community expects our industry to ensure that premiums are sustainable and so we cannot take an ‘ostrich head in the sand’ approach to understanding and catering for future trends. This challenge also highlights the importance of robust benchmarking of pricing to cater for policyholder and member best interests,” he said.
Does Community Standards and Expectations also extends to the claims experience, which has generally been poor and god knows how many unsupported claimants got through the whole claims process alone. Insurers really need to re-think their approach to managing claims. Are they judge and jury? Is there time accountability? Has the claimant enough knowledge to undersatnd and be sure they got paid the right amount of benefits? My experience tells me they don’t. We need to get money into claimants hands quicker. That’s the promise we made as advisers to our clients. Nobody should be unsupported through the claims process.
As an industry we can turn around the negative rhetroic by providing a really good claims experience at a very difficult and stressful time in the claimant’s and their family’s lives.
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