ClearView MD, Simon Swanson, has identified new income protection insurance proposals as the main area to which ClearView’s underwriters will be applying a heightened focus during the COVID-19 pandemic.
In a week which has seen a statement made by the Financial Services Council with regard to the sensitive approach its members insurance firms will be taking when considering new business proposals from healthcare and other frontline workers (see: Underwriting Announcement), Swanson also released an opinion piece in which he talks about the nature of underwriting both lump sum and income protection business during the current crisis (see: Pool Safety and Underwriting Risk in Times of Crisis).
According to Swanson, spreading the risk evenly across the pool for new death and trauma cover proposals is a relatively straight forward approach which has not been impacted by the COVID-19 outbreak:
…pandemic threats have historically been relatively short-lived and the associated death toll among working-age people …has been relatively low
“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,” said Swanson, who reflected generally-held medical opinion that 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,” he said.
When it comes to income protection insurance, however, Swanson says insurers are assessing in equal weight both financial risk and morbidity:
“Risk pooling is potentially less effective because people can theoretically anti-select …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.”
Swanson says this type of behaviour can distort the risk in a pool, and that 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.”
Click here to read the full article written by ClearView Wealth’s Managing Director, Simon Swanson.
