The life insurance sector appears to be in the process of developing strategies and solutions to better insure consumers for episodic disability conditions.
This initiative is borne of the sustainability challenges presently confronting the sector, given an even sharper focus by the rise in mental health-related TPD claims.
Panellists at the Zurich Sustainability Round Table challenged each other and called for greater collaboration with regulators and consumer groups to arrive at an answer which will both serve the best interests of consumers while ensuring the continuing sustainability of the life insurance offer in Australia.
While mental health-related TPD claims have (rightly) been the focus of much industry concern, this issue was given a different perspective by Gen Re’s Regional Chief Actuary, Matt Ralph, who put the case to his fellow panellists that focusing solely on mental health risks missing the broader issue. Mental health-related claims, he said, is the clearest example of a wider challenge involving “…episodic and relatively difficult to define” conditions.
We need a better response to those sorts of conditions
Musculoskeletal disorders, including recurring back pain, are also increasing, he added, concluding that “A product which is designed for total and permanent disability is not the right response to that. We need a better response to those sorts of conditions.”
While there was general agreement among the panel with Ralph’s position, the adviser voice in the room, Perera Crowther’s Kristen Agius, shared a general concern relating to any new product initiatives that may offer lower-priced but more restricted benefits.
Agius said the challenge was how to evolve product design without simply limiting cover or forcing clients into narrower structures. She floated the idea of staged payouts, suggesting the industry may need to rethink whether a single, permanent disability trigger is appropriate for episodic conditions.
During the discussion, Agius also raised what was very much an adviser-related concern, namely the challenge of recommending a new, lower-priced product – offering scaled-down benefits and possibly staged benefit payments – when the client’s condition might also have resulted in their claim being accepted under existing ‘full offer’ TPD or IP contracts.
This uncertainty …may have the effect of potentially dampening the enthusiasm of advisers to embrace any new product solutions
Agius also raised what would be a general concern for many advisers of the uncertainty surrounding potential future pricing increases for such new offers, given the significant increases to base rates – for products such as TPD – that the industry has been experiencing in recent years. This uncertainty, according to Agius, may have the effect of potentially dampening the enthusiasm of advisers to embrace any new product solutions the industry may generate.
As industry discussion and collaboration continues – where the panel made mention of the need to involve the consumer lobby and the law makers, Zurich’s, Head of Retail, Tim Kane, emphasised that any reform must continue to cover mental health.
He affirmed one in four applications for cover include a mental health disclosure: “We do need a solution that covers mental health,” he said, adding that severity-based or staged assessments could form part of the answer.
David Creaven, Head of Client Partnerships at SCOR Australia & New Zealand, said the current construct can place claimants in a difficult position. To receive a TPD payout for mental health, a person must effectively be deemed permanently incapacitated – a determination that may sit uneasily with efforts to support recovery and return to work. Creaven’s concerns are explored further in the final part of this Zurich Sustainability Round Table…
Click the video image to review the Zurich Sustainability Round Table Part 4 discussion…
If one takes the adviser perspective of "the challenge of recommending a new, lower-priced product" to an extreme, life companies should offer super super super featured products at super super super high costs. Advisers would then have to justify not taking out that most generous product.
In reality, advisers would likely recognise that the "super super super featured" product is overpriced and not recommend it.
The issue seems to be one of relativity against current norms. If a basic, low-featured product had been the norm for decades, and a new product was introduced that paid out in more cases, advisers might view it as too expensive, even if it's only 50% more costly than the existing options. And even if the new expensive product was similar to the on-sale products we see today.
In that case, I expect advisers would say they can't possibly recommend that more expensive product.
This suggests that the problem lies not with the underlying fundamentals, but rather with a fear of change and the starting point for comparisons. Advisers may be hesitant to recommend new products because they're comparing them to existing options, rather than evaluating them on their own merits.
I also note that the "challenge of recommending a new, lower-priced product" approach contrasts with the paradigm used by superannuation trustees, who are required by APRA to consider the erosive impact of insurance costs on retirement benefits. They often aim to cap insurance costs at around 1% of salary, highlighting a different mindset between advised and non-advised sales channels.
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