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Insurance advisers should expect above trends claims increases

A rare combination of factors probably means that 2023-24 will generate above trend levels of claims in several product categories.

Wednesday, May 3rd 2023, 6:00AM

by Russell Hutchinson

The first is the worsening economic picture. Rising interest rates are a tool used to squeeze inefficient spending and lending from the economy ‘until something breaks,’ as economists say.

Which sounds fine at the level of macroeconomics, but the impact on people and households can sometimes be a lot of personal pain.

That is often associated with a rise in income protection claims, or a lengthening of claims as economic conditions make a rapid return to the workplace more difficult.

Deferred diagnosis and treatment plays a part. This can be because of capacity constraints, like what has been reported about the Southern District Health Board’s challenges in delivering timely specialist consultations for patients with cancer.

Deferred diagnosis challenges are still being found as a backlog in screening has been cleared post Covid-19 control measures being eased.

Some health insurers are already disclosing higher claims costs than forecast as treatment deferred during restrictions is picking up since the start of this year. In the medium term these claims can go beyond health insurance to trauma and income cover claims.

Mental health claims seem likely to rise as we continue to see reports that mental health services are under pressure. For example, in the following article, Starship Children’s hospital reports a rise in self-harm since the pandemic.

As economic conditions become tougher (rising inflation, rising mortgage rates) then we can expect to see more of this.

More detailed work has been done by Swiss Re to assess the role of mental health in claims trends internationally. See this paper, in particular, which identifies the rising role of mental health in total claims, and also explores the impacts of Covid-19 control measures.

The Swiss Re report details a complex picture which shows that some expected changes were not realised, for example, higher suicide rates were predicted for the pandemic, but these have so far been avoided.

In Australia and New Zealand, the suicide rate decreased 6.2%. This is in sharp contrast to suicide rates in Japan, which also declined early in the pandemic, but then increased sharply later – it is possible we will see that rise come if it tends to lag the other indicators above.

At the same time, alcohol-related deaths in Australia increased, and expenditure on alcohol in both Australia and New Zealand increased significantly.

Economic factors are identified as a concern alongside the note that the effects of the pandemic and associated control measures were felt very differently depending on the nature of employment. As with the experience in New Zealand, Swiss Re found a sharp increase in the number of young people with mental health problems.

Lastly, with plenty of Covid-19 infections expected this winter, there could be more claims for long-Covid emerging over the coming year.

Tags: Opinion

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