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:

  1. A claim must be able to be objectively measured
  2. An actual financial loss must have occurred
Retender MD, Ilan Leas …challenging the industry to re-think the structure of risk insurance products around objectivity and demonstrated financial loss

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.


  1. What IIan suggests appears to have merit, although previous attempts to take the market in this general direction have been tried before and were discontinued – at massive cost to the companies who tried to innovate and the clients who are still insured under those contracts.

    The Life Insurance sector is facing many challenges, they won’t be fixed by one bright idea. Industy participants need support from the regulator to address these core issues. A significant factor which must be fixed is the lack of access to risk insurance advice.

    We need to find ways to ensure that access to life insurance advice meets the need which exists.

  2. “A long, long, time ago………..” sorry for the relapse into American Pie

    When I joined this industry sometime in the distant past there were a number of income protection contracts that featured a need to not only prove inability to work BUT also to prove LOSS

    That was a tricky proposition even then because it depended on business structures. And yes it was simple for a sole trader who didn’t employ anyone or was straight out employed person. After that it became a nightmare and that’s why product IP products eliminated a “:Proof of Loss” clause.

    I don’t believe that the reason we had such a quickfire increase in IP premiums is because the contracts to were too generous. Compared to what?

    The real issue with IP is that firstly, that wonderful organisation, always in touch with the industry, known as APRA, suddenly decided that cross subsidisation between life insurance products was an NO-NO.

    The other reason is that for at least the last 15 are possibly 20 years, in a rabid conga line of insurance CEOs, sought to improve market share at all cost, where their bonuses were extracted from market share. Don’t worry about costing them properly !

    Very predictable result.!!

    I say that if those IP contracts had been costed properly, and LIF had not been introduced, we would still have a steady inflow of fresh new IP policyholders. Right now, you’d be nuts to write life insurance contracts with a two-year responsibility period at 66% commission as we head into what undoubtably will be a very nasty recession.

    And while we’re on the subject of avoiding lapses, my prediction is the industry funds will succeed in arguing to the Labor government that the payment of insurance premiums for cover in superannuation should no longer be funded by ROLLOVERS. That will impact on some advisers lapse rates

  3. The problem with this thinking is you discount potential loss. This suggested rethink has lost the plot so far as opportunity losses. Just say somebody is building a business or studying towards changing careers, both of which potentially leading to greater income and wealth accumulation…how are you to objectively measure that?? If it hasnt occured but the insurred has thought and planned ahead (which often happens)…how is it possible to quantify this subjective reasoning?

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