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Implications of mental health on insurance, and more daily news

In his piece Dr. Chris Ball credits information being released by some insurers for the spike in media coverage of mental health issues. Insurer publications imply that mental health issues have reached epidemic levels. The article questions the credibility of the claims highlighting the increase in antidepressant prescription rates while citing a study that found the growth of adult mental illness to be minimal. With the increased rates of mental health issues being credited to demographic changes. The article highlights that the American Psychiatric Association view on mental health causes an issue with insurance companies. Insurers depending on medical models to frame products means applicants will need their mental health issue labelled in the early stage of their application process so that underwriters have a simplified way of assessing circumstances. Dr. Ball notes that the medical studies insurers refer to are usually not representative meaning that the assessment is unfair for applicants. Dr. Ball indicates that mental health issues requires a deep contextual understanding.

“Mental health has become a big topic of discussion in the media. Headlines describing mental health problems at epidemic levels are common - and many come from “research” cited by insurers. We know antidepressant prescription rates have doubled in high income countries over the millennium, to the extent that over 10% of the population in the U. S. and Australia take these drugs. So, is there really an epidemic of mental illness?

Toshi Furukawa, Professor of Clinical Epidemiology at the University of Kyoto, upbraided popular writers for “touting such sensational words like ‘epidemic’, ‘plague’ or ‘pandemic’”.1 A systematic review by Richter et al. concluded that the prevalence increase in adult mental illness is actually small and that it was mainly related to demographic changes.2 This is a view supported by Harvey Whiteford, Professor of Population Mental Health at the University of Queensland, who was quoted as saying, “There is no epidemic of mental illness sweeping the world…survey data which has tracked over time shows that the prevalence hasn’t changed - it’s flatlined.”3

DSM-5, the diagnostic manual from the American Psychiatric Association, states, “People are negatively affected by the continued and continuous medicalisation of natural and normal responses to their experiences; responses which have distressing consequences but do not reflect illnesses so much as normal individual variation”. This creates difficulties for the insurance industry, because it largely relies on a medical model to support its products, particularly in Disability Income (DI).

When an episode of psychological distress is disclosed by an insurance applicant, finding the right label for it is always an early step in the assessment process. At one level, a simple solution for the underwriter could be to continue with the medical model and rate for a diagnosis or any small indication of a diagnosis, lumping all psychological distress together.

When an episode of psychological distress is disclosed by an insurance applicant, finding the right label for it is always an early step in the assessment process. At one level, a simple solution for the underwriter could be to continue with the medical model and rate for a diagnosis or any small indication of a diagnosis, lumping all psychological distress together.

However, the outcomes of these disorders are strongly influenced by studies that mostly follow small samples of patients who encountered secondary care services because of the severity of their illness. These groups are rarely representative of the overall population, not adjusted for physical disorders, followed up for relatively short times and subject to publication bias. Including only these patients substantially over-estimates both all-cause mortality and suicide risk.

Clearly, this approach to risk assessment appears unfair to people who have experienced episodes of psychological distress but whose risk is low or the same as the general population. The situation is rather different in DI where mental health claims are common and perceived as prolonged and difficult to manage. Where psychological distress is disclosed by the DI applicant, a purely diagnostic approach proves a weak discriminator of risk. Exclusions are not well understood by consumers nor easy to enforce at claim stage.

The management of any episode of psychological distress in clinical practice is not just a matter of diagnosis but requires understanding in a much broader context. The individual’s experiences are important, but the history, personality, resources, social setting and the nature of the circumstances themselves must be grasped. Using this bio-psycho-social model helps to understand why one person experiences significant distress (possibly illness) in a set of circumstances, whilst another manages perfectly well.” Click here to read more

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Understanding the finer details of FSLAA, and more daily news

MBIE released more information on FSLAA in mid-December. Penny Sheerin, partner at Chapman Tripp, has said that these changes are finer details but did highlight that there would be changes to the FSP register to ensure the reduction of registry misuse.

“The Ministry of Business, Innovation and Employment last week released the regulatory requirements that underpin FSLAA.

Penny Sheerin, partner at Chapman Tripp says that any advisers reeling at the updates needn’t worry too much if they are already on board with the changes.

“Really these updates are just the finer details. Tidy-ups to some of the wording of the regulation. Updating terminology to reflect the new regime and a number of other quite administrative points. A lot of it is not ground-breaking new content.”

But Sheerin notes that there is one area which advisers need to pay heed too.

“One thing to note are the changes to the FSP Register, specifically around limitations that have been put in place to limit the misuse of the register. These changes have been talked about for a while but now they are manifesting in the upcoming regulations.””

The Financial Markets Conduct Amendment Regulations 2020 has been updated to change:

  • “Replacing terminology from the Financial Advisers Act 2008 (FAA).
  • Replacing references to financial advisers with references to financial advice providers and including transitional provisions to give affected providers time to update documents.
  • Prescribing eligibility criteria for an entity that wants to be an authorised body under a licence that covers a financial advice service.
  • Carrying over the effect of the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 but with some updates and clarifications, and clarifying when assurance reports for assurance engagements must be obtained by custodians.
  • Prescribing limited circumstances in which a provider of a client money or property service is not required to hold client money and property separate from firm money or property including duties to protect the interests of clients.
  • Prescribing when firm money that is held together with client money is to be treated as client money.
  • Prescribing requirements for the record of nominated representatives that must be maintained by providers.
  • Prescribing the statement that lenders can give to make clear to consumers that the limited exclusion from the financial advice regime relating to lender responsibilities applies.
  • Continuing duties imposed under the FAA for former authorised financial advisers and qualifying financial entities to retain records.
  • Carrying over exemptions contained in regulations under the FAA.
  • Updating a cross-reference in the financial advice disclosure regulations so that financial advice providers are able to refer to their website for information about their legal duties.
  • Enabling financial advice providers to provide contingency discretionary investment management services (DIMS) without being subject to DIMS licensing requirements (and providing for transitional arrangements). This carries over and updates an existing licensing exemption for contingency DIMS provided by authorised financial advisers.
  • Dis-applying certain provisions of the Trusts Act 2019 to trusts relating to portfolio investment entity (PIE) call fund units and PIE term fund units.
  • Updating the information that must be disclosed to investors about the tax consequences of investing in managed investment schemes that are PIEs.
  • Amending the Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019, including a new exemption from the licensing requirement for financial advice services.”

The Financial Markets Authority (Levies) Amendment Regulations (No 2) 2020 has been changed so that:

  • “The Regulations set levies for the new financial advice regime as well as for the 2021/22 and 2022/23 years reflecting decisions made earlier this year.”

The Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Amendment Regulations 2020 was enhanced to ensure:

  • “The Regulations replace the now redundant terminology from the Financial Advisers Act 2008. No substantive changes to the AML obligations have resulted.”

The Financial Service Providers (Registration) Regulations 2020 has been changed to include:

  • “A requirement for additional information to be displayed on the Register.
  • New measures to address misuse of the Financial Service Providers Register.”

The Financial Service Providers (Exemptions) Amendment Regulations 2020 has been updated so that:

  • “The Regulations exempt certain providers without a place of business in New Zealand from registration on the Financial Service Providers Register if they do not promote services to New Zealand clients.” Click here to read more

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Holiday reading - why fair play works

A review of why fair play works, one particular story that caught my attention was this: 

The Empire State Building was constructed in just 13 months, and that included the dismantling of the Waldorf-Astoria hotel that sat on the site. Paul Starrett, the builder, treated his workers rather well by the standards of the time, paying much attention to safety and paying employees on days when it was too windy to work. Daily wages were more than double the usual rate and hot meals were provided on site.

The concept is known as “efficiency wages”. Companies that compensate workers well and treat them fairly can attract better, more motivated staff. Unlike most construction projects, the Empire State Building had low staff turnover, and workers suggested productivity improvements such as building a miniature railway line to bring bricks to the site. But Starrett was not naively generous; he hired accountants to patrol the works, checking that all materials were accounted for, and staff attendance was recorded four times a day.

The review is at this link, and you can buy the book at this link. I've linked to the Kindle version - which you can read on your phone - because you can get it instantly. 


Seasons greetings from Ed

Season’s greetings! Did you know 3,765,000 kmh is the speed that Santa's sleigh would need to travel at to visit every home in the world on Christmas eve?

All of us here at Chatswood look forward to providing you with plenty more data insights in 2021!


Transitional licence update, and more daily news

In December the FMA revealed that there has been an increase in transitional licence applications. The latest figures indicate that 97% of the industry is now covered, with 1,356 licences approved and 715 authorised bodies. Further insights indicate that 9,157 individual financial advisers are covered by a transitional licence. John Botica, FMA director of market engagement, has expressed that he is pleased with the engagement levels regardless of the different occurrences throughout the year. Botica has reminded the remaining 3% that they will have until 15 March 2021 to apply for their licence.

“Back in September, things were looking shaky for over 2,000 financial advisers who had yet to apply for their transitional licences.

But now, at the end of the year, the data is showing that a big final surge before the holiday break has seen 97% of the industry covered by a transitional licence.

As of December 20, 1,356 licences have been approved alongside 715 authorised bodies, meaning that well over 2,000 advisers have made the decision to engage with the new regime. Of individual financial advisers, 9,157 are covered by a transitional licence, giving some leeway for double-ups on the FSPR, that means that around 97% of the industry is now covered.

FMA director of market engagement, John Botica is pleased with the results.

“I am very pleased to see advisers taking the transition seriously and engaging [with us] in the process. With everything else that has been going on this year, all of the stresses and strains that 2020 has thrown up, advisers have really answered the call to be part of a regime designed to provide even better customer outcomes.

“Up and down the country advisers make life better for their clients. They should rightly be proud. Licensing numbers show that the overwhelming majority are well on the way to being ready for the new regime.”

Last week the numbers showed that only 8,423 advisers had gained their transitional licence, meaning in the past week there has been a last minute surge of 734 advisers getting covered by a transitional licence before the holidays.

Those 3% of advisers who are yet to gain their transitional licence will have until March 15 to do so if they wish to continue to give financial advice.” Click here to read more

In other news:

From Stuff: Man denied residency due to stage 4 brain cancer could get 11th hour reprieve

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