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Selecting trauma policies should be no big deal

Don't get fooled by all the bells and whistles life insurance companies put on trauma policies, Naomi Ballantyne says.

Monday, October 7th 2002, 2:43PM

by Naomi Ballantyne

Since the advent of trauma products in the New Zealand marketplace 10 years ago the race has been on between product providers to try and produce the longest list of covered conditions in an attempt to differentiate their product from others.

While all products cover the major health crises such as heart attack, stroke, cancer, paralysis, organ disease, Parkinson’s disease, multiple sclerosis and bypass surgery etc, the innovative list of ‘add-ons’ that competing companies have introduced is breathtaking.

We have seen years of product tweaking where companies have scrambled to match the growing list of covered conditions provided by their competitors. The result is an impressive list of covered conditions which, on the surface, would appear to cover every conceivable health issue.

The reality is that the majority of conditions which have been introduced over recent years have added very little additional value to the client.

This approach can baffle and confuse advisers and their clients. While it is designed to give peace of mind regarding the width and depth of cover provided, in actual fact the real benefits of the product remain very similar to those that existed in the very early days.

Make no mistake. Companies do not add ‘free’ benefits to their policies unless they are very comfortable that the odds of a client claiming against these benefits are very slim. Where a new benefit has very real value to a client then generally this will be reflected in an additional price, or it won’t be added in at all. This in itself is a very good indication that a benefit adds real value.

Advisers and clients should be aware of the techniques that companies employ to make their products look more attractive. Separating out one condition and listing it as several different conditions is one such ‘marketing ploy’ that has been put to good use by some companies. There is absolutely no added benefit to the client when this occurs.

The key to trauma products is how well they cover the health events that are most likely to occur during the lifetime of a client. Heart attack, stroke, cancer and bypass surgery are all given.

Children’s benefits, buy-back provisions, diagnosis benefits, intensive care benefits are all examples of valuable benefits that do cost. While some companies offer these as standard parts of their trauma product, the extra cost has actually been incorporated into the price. In each case benefits such as these will add real value depending on the circumstances of the client.

Non-Alzheimer’s dementia, Creutzfeldt-Jakob disease (CJD), encephalitis are all examples of ‘freebies’ added to make a product appear more comprehensive but in reality very unlikely to be claimed. It certainly doesn’t hurt to have them added in. How can it hurt? However when trying to compare products the only sensible comparisons are of those benefits that add real value.

Event

Approximate Incidence per million persons

Accidental Deaths

500

Cancer

3000

Angioplasties

700

Cerebrovascular Disease

700

CJD (Mad Cow Disease)

1

Source : New Zealand Health Information Service 1996 - 1998 Survey Results

The right questions to ask of a trauma product are:

  • Does it cover the conditions that are most likely to happen?

  • Do the covered conditions have broad appeal? eg: Do they provide comprehensive cover only for people 50 plus or are there conditions included that will provide real benefit to someone under 30 such as cancer cover and an intensive care benefit?

  • How soon does the client get paid anything? Is there a diagnosis benefit so the client at least gets something while waiting for the medical profession to confirm they meet the full benefit criteria?

  • How difficult is it to receive a payout for these conditions? For the major conditions it is important to compare the definitions to determine whether one company’s definitions are more difficult to meet than others.

There is absolutely no point in comparing the small stuff. Companies can and will add more and more freebies over time, and generally this is just marketing hype. It is very, very important to compare the real value added parts of each contract. It is very difficult indeed to explain to a client who has had a stroke why they have to wait the 12 or so months that it takes for their disability to be certified as permanent before they get paid. It would be even harder to do so if you know that it was possible for them to have had a product which would have paid a diagnosis benefit in the meantime? Surely in this case the client isn’t going to care that they had cover for non-Alzheimer’s dementia instead.

Don’t fall into the trap. Comparing the small stuff is only sensible if the products you are comparing are equal for the big stuff.

The good news is that by adopting this approach you can save yourself an awful lot of time and frustration trying to analyse conditions that really don’t matter.

The reality is that trauma claims all over the world have been higher than expected. The cost of trauma cover has started to increase and is likely to continue increasing in the same way that income protection premiums have.

In this environment it would be very difficult indeed for a company to add real additional value to their product without having to increase the price to reflect it.

Thus when a company adds a new condition for free you can be sure that it is either such an obscure condition that the likelihood of claims is too small to have an impact on the price, or they have simply re-named a condition that was already effectively covered under one of the existing, broader conditions and is purely an exercise in growing the list for marketing purposes.

Naomi Ballantyne is the chief executive of Club Life.

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Naomi Ballantyne ONZM, is the Managing Director at Partners Life.

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