I've recently been sent a great piece from Gen Re on heart attack definitions. At the start of what is a pretty through review of the use of different diagnostic techniques they ask some great questions which bear repeating:
Although medical definitions are part of an insurance contract, suggesting an absolute meaning, the insurer’s claims philosophy must address questions such as, “What is intended to be covered?” or “Is the condition covered even if not all claims criteria are fully met?”
This should be contrasted with a media which has a taste for black and white declarations on the subject, such as recent articles which talk about '...using “out-dated” medical definitions in their Trauma (Critical Illness) policies" that was a quote from the Australian media, but it happens that Rob Stock wrote about this very issue in an article published this morning (at this link).
In their review Gen Re talk about the value of being clear about what is intended to be covered. In doing so they talk about impact, impairment and loss: all reaching back to a concept that should be behind every insurance, the principle of indemnity. Put another way, insurance shouldn't be a kind of lottery where a small heart attack could trigger a financial 'win'. In order to have affordable products which can protect us all from real losses we need to have payments that broadly match impacts. So Gen re suggests that insurance wordings may never match the terms used by medical staff, and that perhaps they never should. That is why I am not in favour of a general ban on some more restrictive conditions, but I am in favour of clear communication of what we mean by each definition, in terms that at least most people reading the document can understand (see my post at this link). Indeed, there are many circumstances in which having a tough definition is preferable: one is when you want to reduce cost, another is when you only want a payment triggered by a serious event (such as shareholder protection). But whatever the wording, if an insurance definition differs from a medical term the customer should know how and why. To prevent 'scandals' the customer probably need to know that before they buy, not right after they claim. The challenge is that when buying the cover, clients are rarely that interested.
For those advisers that like the idea of a lower, non-taxable, income protection benefit the potential for a review of the taxation of income protection adds risks, or complexity, or both.
For example, if a future review were conducted by Inland Revenue, and the position were changed so that all IP benefits (AV, LOE, or Indemnity) are deductible and taxable then those clients with existing AV benefits may have a problem. If the tax position changes for in-force contracts then they probably need to buy extra cover. A boon, perhaps, to insurers and advisers, but difficult for some clients that have developed health problems in the meantime. Alternatively the change could apply from a certain date forward, adding to the complexity of giving advice to clients with in-force AV contracts which will remain non-deductible and non-taxable. Insurers could make like easier for advisers by allowing a one-off increase to the benefit if it is deemed to be taxable. They are only likely to be tempted to do this if there were better information and enforcement around the taxation of IP benefits.
We continue to hear of complaints that claimants do not declare their income and then discover that they have unpaid tax problems to add to their health issues. Which brings us to the other eventuality: assuming everything becomes non-deductible and non-taxable, then the reverse problem applies. Some may seek to reduce their benefits, a one-off hit to insurers. But the gains to consumers and reduced replacement ratios may be worth it. Each of these costs probably still outweigh the complexity of staying with the current situation.
A large group of public health organisations has prepared a public statement in support of e-cigarettes. They all believe that they are significantly less harmful than smoking. Unfortunately they note that is a view not shared by either smokers, or apparently government, and insurers. But if we were able to successfully promote that single fact then an awful lot of people currently smoking could use e-cigarettes and enjoy considerably improved health outcomes. Link.
Zurich have done an international survey and find that people underestimate their personal risk and overestimate the cost of coverage. You can read more and download the full report at this link.
The result: they assume that coverage is not needed and too expensive. There is, of course, a solution. We have to tell them what their risks are and show them that coverage can be cost effective. Because they won't be looking out for it, the message needs to be attractive, positive, and engaging. Moaning about underinsurance doesn't tick any of those boxes. Creating engaging content looks like the better way to go.