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Insurer defends online income protection

Cigna New Zealand has launched what it says is New Zealand's first income protection insurance that can be bought online, a move described by an insurance expert as potentially "dangerous" for customers.

Wednesday, March 21st 2012, 6:30AM 11 Comments

by Niko Kloeten

Graeme Lindsay, who owns insurance analyst Strategy Financial Services, said income protection is a "minefield" due to a number of issues that consumers won't be aware of if they don't use the services of an adviser.

The most complex, he said, is the issue of offsets against whatever income the client is still earning at the time of the claim.

"What this means is, how much is the insurer actually going to pay you despite what it says on the policy?  The position of a comma can make a world of difference to what you actually get paid.

"Some insurers will say, ok, you're earning $100,000 a year and you're insured for $50,000 a year but you've still got ongoing income of $30,000 a year so we'll give you $20,000.  However, others will say, we'll give you three quarters of your loss up to a maximum, which would mean you would get the full $50,000," he explained.


Lindsay said advisers "add value" at both ends of the process, when applying for insurance and filing a claim, and buying online without the help of an adviser is "dangerous".

The increasing trend of offering insurance online is a result of "focus groups", he said.

"I think it's a reaction to this notion that Generation Y-ers will buy everything online.  These people will get what they paid for."

However, Cigna chief executive Gail Costa said customers wouldn't be at risk and the target market for the product - largely those who don't already have income protection - would have little overlap with the client base for insurance advisers.

"Those that are with brokers are going to go with brokers and aren't going to go online," she said.

"There are a number of New Zealanders without insurance despite the best efforts of advisers.  We did the research and we know it's top of the mind but people haven't done it."

She rejected the claim income protection insurance is too complex for people to do online.

"I come from a broker background and I don't know how complicated it [income protection] really is.  What is complicated is all the riders and understanding the definitions, so we've been trying to make it simpler for customers."

Costa also said brokers mainly sell products to age 65, which is more comprehensive but also more expensive; Cigna is offering two-year income protection policies which she said are more affordable.

"If you have something that keeps you off work for two years you'll probably be off work forever."

Niko Kloeten can be contacted at

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Comments from our readers

On 23 March 2012 at 11:28 am Mac said:
"If you have something that keeps you off work for two years you'll probably be off work forever."

Then what Gail? Will you direct the client to the Work & Income? Will a Gen-Yers have enough TPD cover to offset their loss of income? Will TPD pay out for a long term mental illness claim? Will you be disclosing these issues on your website?
On 23 March 2012 at 3:41 pm Dirty Harry said:
I agree with Graeme here. This is an ISO complaint waiting to happen.

What is most "dangerous" for consumers is this holier than thou attitude that these online insurers bring to the market. In one breath Gail belittles advisers (ignorant that BROKER is a defined term now, and is quite different than ADVISER) selling to age 65, which isn't really that much dearer, and in the next breath says that if you are off for two years you will be off forever. Which is why we sell the 65 plan.


Haven't looked at pricing yet, but a quick look at the wording shows it uses an interesting definition of pre-existing conditions, contains the usual offsets and has absolutely no cover for mental illness and hiv/aids.
On 23 March 2012 at 3:51 pm andy said:
well said Mac; of course 'to age 65' is more expensive and it should be as it will perform right through for the client claim needs.
Extend the wait period and self insure the gap for a cheaper premium but do not leave a client hanging after 2 years of claim.
It's availablity of products like this that keep us employed (so we can replace with decent cover)
On 23 March 2012 at 4:06 pm Amused said:
Well said Mac, Dirty Harry & Andy. Gail's own last statement in the article above makes a complete mockery of Cigna even advertising this product to begin with. I happened to see the Cigna ad again on TV last night and thought to myself "yeah great, income cover for two years and if I'm still not able to work then what??"

There is a very good reason why if you were taking out an income protection policy with an insurer you'd want to have the benefit paid to age 65. There's also a very good reason why you'd source cover through an adviser (not online) to have the logic/wisdom of the above explained to you!

I have seen examples recently where customers at banks have been sold TPD cover as an income protection benefit for only 2 years duration on the basis that it is "affordable". No doubt given the "sales" mentality that persists in branch banking nowadays the sales stats for the month will look great on someone's chart somewhere but are the best interests of the client being served? No.

On 23 March 2012 at 4:10 pm Dirty Harry said:
which wont be hard.
Class 2, 30yr Male, non smoker earning $60k. 24months, 30 days, indemnity

Cigna $40.73
and according to Strategy FYPC (which ironically still says 'Cigna don't do income protection):
AIA 37.10
AMP 31.11
Asteron 45.75
AXA 54.48
OnePath 40.14
Partners 39.73
Fidelity 37.17
Sovereign $47.08
Tower 45.90

What we can't see is how much the premiums will be jacked up year two and beyond.

Funny that 13 weeks / age 65 is similar or cheaper with most of the above yet is arguably the much better option for many customers.
On 23 March 2012 at 10:05 pm broker said:
In my opinion this approach by Cigna is very similar to Pinnacle Life advertising 'mortgage protection cover' at 20% less. Misleading advertising based on an inferior product offering. FMA where are you?
On 26 March 2012 at 10:46 am Frustrated said:
Companies like Cigna,Pinnacle and all those offering online insurance are making out insurance is simple - Cigna even say it in one of their ads "it is daunting" but clients will feel by the ads promoted by an AB that it is so simple and easy.
Broker said it - why are FMA actively auditing AFAs, reactive with RFAs and no where to be seen with QFEs and issues like this - they are wanting the public to be treated more fairly and provided all details and yet they allow this - it is a total conflict and as an industry we should all be demanding they do something about this. Clients may change to Cigna if they feel they will save $
On 27 March 2012 at 8:37 am Mark Jory said:
I tried to get an online quote for the Cigna IP, and as soon as I said I had a pre-existing condition, I could go no further.

You don't even get the choice to explain what the condition is.

This is dangerous as it may encourage some people to not disclose anything in order to get the quote, then accept the quote with Cigna unaware the person has some pre-existing condition, and you can bet what their response will be at claim time.
On 27 March 2012 at 3:12 pm Johnny said:
It seems to me this product is targeted at a segment none of you want anyway. Relax and carry on I say.
On 28 March 2012 at 8:17 am Chris said:
How long before indecision and increased risk to the public from the misunderstanding or confusion of 'what is right' for the consumer leads to risk products inc. IP being re-classified to a Cat 1 product? Many providers and firms are applying those standards to their advice practice anyway, why not make it the standard and level the playing field? The propensity for getting risk insurance wrong is high, the effects of getting it wrong can be devastating, this product set deserves to be treated as higher risk - perhaps that will get the message across to those advisers or firms who believe that they can sail under the regulatory radar as 'it's only Cat 2'.
On 28 March 2012 at 9:04 am Mike said:
Yes, Johnny, but that is a short-sighted analysis. Anyone, whether target market or not, who is poorly served by any entity promoting insurance, is bad for all of us, including those who do the job well. As Mark says, the likelihood of non-disclosure is so much higher, and therefore, down the track, declined claims will have impact on the broader community's view of the industry's credibility.

The Life Direct ad, which I heard again yesterday, makes a BENEFIT of not having to "read all the paperwork" by buying online through them. Please...

Cigna also sells life cover through Kiwibank. The online form does not even require disclosure of height & weight!
Commenting is closed



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