Friday Fun
Ratings Agencies In Trouble

Older lives: It's about employment, pricing, and claims management

I am all in favour of a good dose of discrimination when it comes to risk pools. An insurable risk is something that comes as a surprise: so we are permitted to discriminate against people that are already unwell, or have a much greater likelihood of suffering from the insurable event than the others in the risk pool. That's not just about profit, it is about equity between participants in the risk pool. That is why we are permitted to charge different rates based on age, for example, provided they are based on reasonable information about claims experience.

However, sometimes tradition gets in the way of habit. One example is the age-based termination of plans - usually income protection, trauma, and total and permanent disablement. Priced correctly, and / or allied with definitions tied to pre-disability work, we can make these products function perfectly well for the increasing numbers of people in the workforce after age 65. Maximum claim periods can also be set without reference to age in many cases, or with a reducing reference to age.

Of course, many clients will choose to reduce or terminate their insurance cover as they get older. This may be a function of cost, but also, we hope, of reduced need as their assets rise and their financial commitments, such as debt or the need to support young children, diminish.

Given the increasing likelihood that clients now in their 30s and 40s will probably work until they are 70, I would expect financial advisers to consider continuation of cover past 65 as much more important - and insurance companies should drop the out-dated approach of age-based termination - or at the very least update their view of the natural termination of full-time work to age 70.

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