by Russell Hutchinson
The idea of making a payment proportionate to the impact of a condition or disease is not new. In fact, ‘severity-based’ is really another term for ‘principle of indemnity.’
Indemnity means we should put the client back in the situation – financially – that they were in before the loss. When insuring cars, houses, and boats that’s always been easy to do. When insuring lives and people it has always been trickier.
Trauma started off with a limited set of trauma events, each very serious, and a lump sum payment. Competition ensured that the contracts would cover more and more conditions, with more generous wordings.
Advances in medicine meant earlier diagnosis, improvements in treatment, better survival rates, and more chance of a faster return to a normal life. We arrived at a situation where some clients could achieve very high sum insured payments for something that could have had no great impact on lifestyle or income.
That means high premiums and a concern for insurers: the principle of indemnity is being breached and lots of people who should buy Trauma perhaps aren’t because of those high premiums.
Severity-based Trauma has been arriving in stages for 10 years – longer lists of “diagnosis benefits” – which are in fact limited benefits paid for early stage diagnosis of a serious condition are in a way ‘severity-based’ payments.
In chronological order we can add the following developments:
In presenting these together I could offend each insurer – arguably they are each unique, and they are, in truth, difficult to compare directly. At a very high level: each assigns different benefit levels to different conditions and stage of diagnosis.
What do advisers think about this?
Based on a survey we did a few months ago I believe there are three main views amongst advisers.
Whatever your viewpoint, it is worth looking into these products and coming up with an approach that fits with your view of how financial protection should work for your clients.
« What you actually said, versus what the client heard you say | So little TPD, for tiny sums » |
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