A new white paper released by ClearView has urged the industry to re-think its approach to income protection insurance.
Authored by the insurer’s Chief Actuary and Risk Officer, Greg Martin, the white paper says the life insurance industry “…must seriously rethink its approach to income protection insurance in order to see more people take up this critically important cover and ensure a vibrant, sustainable future.”
…many Australians are more likely to take insurance to protect their car or pet
The paper refers to what it considers to be the significant deterioration in the product’s growth and claims experience in recent years, despite the fundamental need for income protection insurance. According to Martin, despite income protection protecting what is arguably a person’s most valuable asset, many Australians are more likely to take insurance to protect their car or pet.
He added that it was too simplistic to blame issues such as:
- Heightened media and regulatory scrutiny of the financial services industry
- Mounting mental health-related claims
- Recent price instability for the discontentment of both consumers and insurers
“Focusing on these factors alone won’t properly address the issue,” said Martin, who suggested the key factors behind the decline of income protection were in fact:
- The effects of cyclical trends in underemployment
- Slow wages growth
The statement accompanying the release of the report noted headlines that heralded Australia’s almost 30 years of uninterrupted economic growth and prosperity painted a rosier picture than what the average worker was actually experiencing. “Income protection claims follow economic cycles, with poor economic circumstances driving increased claims. The industry’s claims experience reflects the underlying reality rather than the headlines,” said Martin.
The paper concluded that a fresh approach to the economic management of income protection portfolios was needed to break what it referred to as the worrying pattern of rising claims and then rising premiums, in order to achieve better price stability and a more consistent customer experience.
Advisers can click here to access ClearView’s white paper on Income Protection and the Economic Cycle.
The current system does not work.
What we have, is a cycle of increasing claims and lapses brought on by the standard tactic of increasing premiums to offset claims and lapses, which is totally self defeating.
Australians will not tolerate double digit premium increases.
The solution will be for the Industry to look at their claims and give clients the option at application time, to opt out of certain events like stress related claims and discount the premiums accordingly, to enable Australians the opportunity to purchase Insurances with some premium stability, which will reduce lapses and allow the Life Companies the ability to build a viable and profitable long term model.
So long as clients have the option to choose between top of the range cover that is more costly, or a more stable cover that keeps the premiums affordable, with the policy benefits and if applicable restrictions, clearly explained, then we can tailor quality products to all Australians and build a future again for the Life Insurance Industry.
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