This left-field proposal on restructuring the nature of life insurance products in Australia has engaged strongly with advisers – irrespective of whether you support the underlying proposition – and receives our nod as the Riskinfo Story of the Week…
Specialist insurance risk firm, Retender, has released a discussion paper in which it challenges the industry to reconsider how life insurance and living insurance products might be re-designed if the sole measure of success was the lowest possible number of declined claims.
With the ultimate goal of generating greater certainty and trust in the mind of the consumer, the basis of Retender’s rationale lies in considering the re-design of life insurance products around two critical elements:
- A claim must be able to be objectively measured
- An actual financial loss must have occurred
According to Retender MD, Ilan Leas, the paper, called ‘The Thanksgiving Turkey‘, is intended to challenge current thinking by exploring the nature of declined risk product claims with a view to advancing a concept – as a thought experiment – about how insurers and government might rethink the design of life risk products to achieve a different outcome.
The paper reflects on the volume of declined claims across the range of Death, TPD, Trauma and DII products and asserts one of the key reasons for the number of declined claims rests in the subjective nature of whether the illness or accident has met the definition required to successfully claim.
The paper argues that the more subjective the claims criteria, the higher the decline rates, before asking the key question: “So, what if, as a thought experiment, we defined our most important criteria for life insurance being the lowest level of decline rates?” It says the first part of the answer may lie in increasing objectivity, which then leads to the paper’s call to structure a new era of risk insurance products around the ability to objectively measure the claim and for financial loss to have occurred:
Coming back to the principle of financial loss, this is the reason for buying insurance (as opposed to receiving a windfall benefit). So, consider if life insurance disability products leaned more into the health insurance and trauma severity-based space and only paid benefits linked to a clear financial loss.
In considering trauma insurance through this lens, the paper asks:
…what if our Trauma products could instead link to the expenses actually incurred due to the condition in question?
So, rather than a windfall lump sum benefit, what if our Trauma products could instead link to the expenses actually incurred due to the condition in question?
The paper notes in its proposed model that there would be no severity-based definitions or limits on replacement ratios but rather, if the claimant has had a condition on the list, they have purchased insurance to recover their actual costs – up to their sum insured.
The paper provides more detailed backgrounding and rationale around its proposed re-think on developing true-to-label and sustainable life and living insurance products, and it also acknowledges there must be additional effort and potentially alternative solutions developed when it comes to insuring mental health and some musculoskeletal conditions.
Emphasising the critical importance of rebuilding consumer trust, the paper concludes with this reflection:
Trust is keeping a promise, so there is an argument that the surest way to rebuild this relationship is for every person purchasing insurance to have full confidence in the outcome, not relying on fate, nor probability…
Click here to access Retender’s ‘The Thanksgiving Turkey’ thought experiment discussion paper.