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Why rapid advances in medicine and technology are pushing up premiums for life and health cover

Major advances in medical technology and therapeutics over the past 20 years are impacting on life and health insurers, with underwriters struggling to keep pace with the speed of change.

Tuesday, July 5th 2022, 9:11AM 4 Comments

by Jenni McManus

Stephen Potter, chief underwriter at AIA New Zealand, says it’s an issue right across the business, from needing to rethink product design and underwriting guidelines to claims management philosophy and pricing.

And because consumers now have access to information and treatment options on an unprecedented level, insurers need to meet community expectations around products and services, Potter told a recent webinar organised by Financial Advice New Zealand.

“With all that information comes an expectation from people who purchase our products and services that we do more and do better while trying to keep the price relatively stable. That community expectation, and what is demanded of us, is increasing.”

For example, community expectation, along with more advanced treatments, forced AIA to update its definition of a heart attack. The old definition required a full blockage of the coronary artery, leading to disputes between insurers, policyholders and cardiologists as the insurance definition differed from the medical definition.

“From a product perspective, in an effort to meet community expectations and in an effort to remove what was at the time a lot of disagreement around a doctor telling person he’d had heart attack and the insurer saying it wasn’t severe enough, we’ve altered the definition,” Potter says.

AIA now pays for a partial blockage of the main artery or a full blockage of a minor artery.

“But the law of unintended consequences [means] we’re paying fairly high sums assured in some areas for events that are no longer as severe as they were historically,” Potter says.

“So, the severity of the heart attack is less, the length of time in hospital is less but the financial reward for being there, when trauma in this market [is] funded up to $2 million, has not changed. So, we have this mismatch which is putting enormous pressure on trauma rates right across the industry.”

Nobody wants to put premiums up, Potter says, “but the pace of change and the unintended consequences of the pace of medical advances have led to these sorts of issues”.

Another bone of contention is PSA screening for prostate cancer. Despite increased testing, mortality has decreased only marginally, Potter says. While men with a level above 4 “probably do need some sort of urological review”, in his view screening should begin no earlier than 50 and stop at 75, although family history and other genetic predispositions need to be considered.

Because an elevated PSA is common, dealing with it poses a big question for underwriters. “In the absence of a formal diagnosis, from an underwriting perspective, what does that mean? How are we supposed to deal with that?”

For those with trauma cover, and the expectation that a raised PSA could lead to cancer, “maybe we’ve got to exclude prostate cancer from the contract, notwithstanding that there is no formal diagnosis. 
“All we’ve got is the elevation which could be something else. Ideally, what we need is a test with high level sensitivity and specificity to tell us what’s going on. In the meantime, as underwriters, we’re left simply going ‘what am I working with? What are the odds of this being something other than what I think it looks like?’ This is the stuff that becomes really challenging.”

Dr John Mayhew, AIA’s chief medical officer and the former doctor for the All Blacks and the Warriors, says people are living to an expensive old age. As a rule of thumb, 80% of the health budget is spent on people with less than a year to live.

In his view, the biggest advances over the past 20 years have come from improved public health measures - food and housing, clean water and vaccinations. But that’s not the whole story.

Better treatments and screening mean many cancers can be diagnosed before they become symptomatic. Disease like hepatitis C and HIV/Aids can be controlled, and better treatments and diagnosis for cardiovascular disease mean fewer people are dying from heart attacks and strokes. And technologies such as defibrillators, 3D printers and robotic-assisted surgery mean morbidity and mortality from once-fatal diseases has dropped.

But treatments need to be based on hard evidence, Mayhew says. For example, osteo-arthritis of the knee was once treated by arthroscopy, but the outcomes were often worse than doing nothing. Ditto lower back pain. “Unless there are very clear-cut indications, surgery doesn’t really have a place here,” he says.

The challenge for insurers is whether their product definitions match the illness and treatment.

“Has our underwriting treatment kept pace?” Potter asks.

“How do we manage all these new pieces of information while keeping the underwriting process as simple as possible, as frictionless as possible and making sure we’re meeting all the expectations of existing policyholders who expect us to responsibly manage new business and to make sure claims are not disproportionately happening and driving the price up for everyone? And what about conditions that aren’t covered?”

Insurers seem to be moving from product manufacturers to services providers, he says, in the way they interact with customers. “And how do we work with advisers to provide assisted heath in a world that’s changing incredibly fast?”

Tags: AIA

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Comments from our readers

On 5 July 2022 at 11:08 am LNF said:
A regards elevated PSA Let me quote a GP.

"Most men over a certain age will die with prostate cancer, very few will die of prostate cancer. The ones that die of it will have an aggressive variety and GP's are not able to identify that. Samples can be taken to identify the very small number but the side effects are not what men might want."
On 7 July 2022 at 11:22 am a thornton said:
Very good thought leadership piece and focus on the long term.

There is no easy solution. Customers benefit from long term policies where the definitions cannot be changed. But medical advancements mean the definitions become out of date and for trauma, as outlined in the article, this may lead to enrichment of some customers.

As implied by the author having definitions that can be altered by the insurer solves part of the problem around medical advances but transfers the risk from the insurer to the customer who is faced with uncertainty.

As far as I can see insurers seem to be making reasonable profits (hence companies like Chubb entering the market and players like NIB and Fidelity picking up other insurers).

The real impact seems to be on other customers whose premiums are higher than they otherwise would be due to the claims here. Other commentators have mentioned ever increasing trauma premiums and it is creating affordibility issues.

Great that the author is offering some other ways to address this around providing assisted health.
On 7 July 2022 at 11:27 am c nicholas said:
thanks for these insights.

These trends as mentioned seem to be driving increased price which is not a great outcome and makes valuable cover less attractive for many NZers.

The suggestion around assisted health is a great one as this will help alleviate the price issues. Well done for insurers focusing on this rather than claiming to have a secret sauce.
On 7 July 2022 at 6:12 pm burns said:
Good topic on medical advances. trauma lump sum payments due under old definitions where no longer any traumatic event has been an issue for some time but there is no easy solution - severity based trauma is complex for example.

Insurers still seem to provide capital to the NZ market and this has been around as an issue for decades.

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