Income protection: Lessons from over the ditch
Representatives of Swiss Re give New Zealand insurance sector advice on how to solve unsustainable income protection losses.
Tuesday, October 13th 2020, 9:56AM 
1 Comment
by Daniel Smith
At this morning’s session of the FSC Generations Conference, Australian representatives of Swiss Re offered New Zealand insurers some helpful lessons on avoiding unsustainable losses in income protection (IP).
In Australia, loose definitions and poor data have meant that IP has given unsustainable losses across the Australian insurance sector.
But before New Zealand insurers begin to feel too smug we should be aware that many of the issues Australia faces are present in our markets.
While our insurers do ask about investment income disclosure and offset claims for ACC, New Zealand IP claims also have benefits that do not conform to the principle of indemnity.
Like Australia, New Zealand has seen an increase in IP claims incidence and duration, if current trends continue the New Zealand insurance sector could see themselves in a similar situation to Australia.
The key focus for Swiss Re senior underwriting consultant, Shane Burdack is that “product design must retain incentive for the claimant to return to work”.
Currently the data shows that there is a financial incentive for the claimant to not return to work. And many will be in a better position financially on total disability IP for the duration of their return to work plan.
Product solutions leader, Kimberly Robinson capped off the session by offering suggestions for the New Zealand markets to avoid the pitfalls of Australia.
The key points were:
- replacement ratios need to truly reflect an applicant's net assets
- underwriters must investigate more deeply into investment assets and other forms of non-employment income and adjust the coverage accordingly
- the current total disability definition is unsustainable and needs to have a greater focus on duties performed, rather than its current focus on hours worked
- the current model with it’s “10-hours rule” does not provide good outcomes for the claimant or the insurer
- the partial disability claims should have rehabilitation as a core part of their underwriting in order to shift the focus away from a strict financial buffer for the client's loss of income to a more holistic focus on the health and wellbeing of the client.
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We know that working is better than sitting on claim for people, I agree that a focus on working and rehab is needed.
However, the discussion on indemnity fundamentally misunderstands the needs of the majority of clients. I understand the issues on the abuse of claims that happen.
Employees are pretty straight forward. But self-employed and business are not well understood by insurers.
One of the key issues with claims in the self-employed space is the desire to insure for the lifestyle they had when they took cover.
The aspects of assets and other non-earned income is part of the equation. Setting the abuse of IP aside, the typical S/E claimant typically they are continuing to work through a decline in health, before hitting the claim.
In this time they are typically using their assets to top up the decline in income, many unaware of the medical issues causing what’s going on.
When they hit the point of claim, they have used their external financial resources, and that reality is what triggers the oh crap we need to look at a claim situation.
We have a section of the population that is abusing disability claims, the genuine ones need to be considered and offered a level of priority. Manage the fraud, protect genuine claimants.
(As both an adviser and an agreed value claimant in the last 18 months, I do have insight into these issues from all angles. I’m at the end of it and recovering, and my insurers have been excellent. As to over insured, a matter of perspective, I wouldn’t say so, as I don’t see an increased bank account from it...)