Normal in the new not-normal

All underwriting involves balancing a range of factors, but income protection underwriting is at least an order of magnitude harder to get right compared to life cover. Mental health, financial underwriting, and moral hazard play a much greater part. So many insurers are adopting a wait and see approach to the product until it is possible to assess the full impact on the economy of the control measures deployed against COVID-19. But now is not a normal time - as this announcement from Asteron Life illustrates, and I think underlines the point not just for them, but also for other insurers: 

An update on underwriting

With many clients facing uncertainty around the future of their businesses and jobs, Asteron Life will continue to consider requests for Disability Income cover on their individual merits at time of application.

To remain consistent with our usual underwriting process, applicants who are currently working at full capacity in their usual hours and duties can still be considered for Disability Income cover. Applicants who are not currently working will have their Disability Income cover assessment deferred until they return to work in their usual capacity. If you’re unsure as to whether or not a client is eligible for Disability Income cover, please contact your aligned underwriter or BDM for guidance before submitting an application.

As one adviser put it to me recently, maybe you don't need to have a lot of new rules, maybe you just need to underwrite. The point here though is that very few people right now are working at full capacity in the usual hours and duties. Essential workers are, mostly. I am, and many knowledge workers in the financial sector will be, albeit from home. Just that change in location will affect the approach of some underwriters. But most of the workforce aren't. That cannot be ignored. If you aren't working in your normal hours, or your normal duties, and you aren't receiving your normal pay, and your business (or sector, or employer) doesn't have its normal future, you can't really expect to get normal IP terms. So underwriting in the time of COVID-19 is difficult and as I pointed out in my post below, income protection may never be the same again


Income protection: a potential casualty of COVID-19

There is a difficulty in rating income protection products at the moment - the market is changing fast, and not all the changes being implemented by the market are yet formal policy. Decision-making is emergent, cases are being reviewed as they arrive. Economic data which may have an effect on the views of underwriters contemplating, say, the financial underwriting aspects of cover on self-employed businesses (even if the case were submitted weeks ago) is not yet available. Just how substantial the impact on the economy has been is yet to be revealed. We are all, to some extent, guessing. 

Insurers are conservative in their views - they must be - and have to protect first and foremost the interests of existing customers, who expect them to meet claims. Income protection is not, for example, a form of redundancy insurance. What that means is that they are taking considerably more care with underwriting new cases than they would. Partners Life has made the most detailed announcements about their treatment of income protection policies and Quality Product Research Limited has adjusted ratings showing (for subscribers) on Quotemonster. However, this plainly fails to take into account the attitudes of underwriters to the cover across the market: Advisers tell me that variety of measures are being employed on a case-by-case basis: referring cover to reinsurers, reducing cover amounts, substituting indemnity contracts for other contract types, applying exclusions by endorsement, seeking additional financial information, deferring, and declining cases. The extent to which this all remains fluid over the next few weeks or coalesces into a new normal which becomes formalised in changes to income protection product ranges will very much depend on events: how soon we emerge from level four restrictions, more data about the impact on the local economy, and because we are a relatively open trading nation, the state of the economies of our main trading partners.

COVID-19 is most serious for people who already had underlying health impairments. Income protection is similar in that it already had serious problems before the COVID-19 pandemic, and the ensuing economic problems. It is in very bad shape now and we cannot say for sure how the product will fare over the next few weeks. It may never be the same again. 


IP ratings under review

Product scores for income protection products are under review. We need to consider how to take into account temporary measures being applied to contracts with some disablement components - IP, Trauma, and TPD - such as the recent restrictions being applied by Partners Life. In the meantime, you need to familiarise yourself with what those restrictions are and whether they apply to the cases you are submitting. We have a schedule of COVID-19 impacts available for subscribers in the quarterly life and health review, which will be issued today. 


Partners Life: Underwriting for COVID-19 financial risks

Partners Life are remaining open to new business during this uncertain time of COVID-19 but have announced a number of restrictions to IP, MP, and TPD, while placing a minimum 6 month stand-down for eligibility for Premium Holiday and Policy Suspension claims. Stating ‘As soon as we are able to remove these restrictions for new business, we will contact those advisers and clients affected directly to review and/or remove these restrictions for any policies issued during this interim period.’

Here is more information:

  1. No new Loss of Revenue Cover or Variable Loss of Revenue Cover benefits will be issued. The cover will be deferred.
     
  2. No new Agreed Value benefits based on Income will be issued. This includes Income Covers, Mortgage Repayment and Household Expenses benefit which are to be based on income. Indemnity Loss of Earnings Income Cover will be offered as an alternative by way of Offer of Terms.
     
  3. MRC and HEC based on actual mortgage repayments and expenses will still be allowed.
     
  4. Disability benefits of any kind will have a Mental health exclusion applied by way of Offer of Terms. This includes lump sum benefits which cover disability such as TPD, Trauma Cover and Hybrid Business Benefits.
     
  5. Disability benefits of any kind will have a restriction for disability first arising while a life assured is unemployed or is on a period of leave without pay. This includes lump sum benefits which cover disability such as TPD, Trauma Cover and Hybrid Business Benefits.

    These lives assured will instead be considered an Occupation Class 5 immediately they stop work rather than after the usual 12 month period. This restriction will be achieved by way of an Offer of Terms.
     
  6. All new policies to be issued will include a minimum 6 month stand-down for eligibility for Premium Holiday and Policy Suspension claims. This restriction which will be achieved by way of Offer of Terms.

Asteron Life mixing and matching options for IP and Mortgage Protection Insurance

Asteron Life has recently made a number of changes to IP options based on SME research and also adviser feedback. See more details from them below:

Ability to Mix and Match different Income Protection options
One enhancement we made was the ability to offer new clients a range of flexible cover options which combine MLC and IP to tailor cover which suits your client. All new business has the option to combine Loss of Earnings (LOE) or Loss of Earnings Plus with Mortgage and Living Cover.

New Ten-hour benefit
We have also introduced an optional Ten-hour benefit which allows customers to work for up to 10 hours without it affecting their Living support benefit payment under Mortgage and Living Cover. This benefit provides a great option for customers who are self-employed and may work hours which don’t generate an income. 


The truth behind back pains

Back pain is the leading cause of disability in most countries. Doctors often prescribe addictive pain relief as it is the simpler to prescribe medications and order tests than telling patients it is unlikely to resolve their back pain. Doctors willingness to prescribe pain relief is why back pain is a major reason for people getting addicted to opioids.

Americans spend $88b USD annually to treat back and neck pain, while the best treatment for most back pain is non-medical. Cigna found that 87% of clients who had surgery were still in so much pain two years post-surgery that they need additional treatment. Click here to read more. Many of these medical interventions have a dubious track record for success. 

We might speculate that in combination, non-specific pain, medical willingness to try something - anything - and long-term income protection could be either immensely valuable, or dangerous to long-term health, or perhaps, at different stages, both. 


FSC Launches new insurance research

The Financial Services Council has launched new insurance research highlighting the gap between typical and ideal cover levels and some significant challenges facing the industry in lifting consumer engagement.

In the media release the CEO of the FSC, Richard Klipin, highlighted the purpose and key findings: 

The study looked at the three main types of life insurance available in New Zealand; life insurance, income protection/mortgage repayment insurance and critical illness insurance. “While 54% of those surveyed agree that it is important to have the right amount of insurance to cover risks including illness, death and job loss; estimates of underinsurance are much higher,” continued Klipin. Critical illness showed the highest level of underinsurance with only an estimated 9% of Kiwi’s being sufficiently insured, followed by 11% who had adequate income protection/mortgage repayment insurance and 29% with adequate life insurance.

Consumer views are included in this introductory video: 

 

Gambling on life 2020-01-22 164052

The research can be viewed here


Asteron Life: Changes to Mortgage and Living Cover

Asteron Life have announced a number of changes to their Mortgage and Living Cover, as well as the ability to quote it alongside Income Protection.

As of Monday 9 December Asteron announced they have introduced:

  • The ability to combine Mortgage and Living Cover (MLC) with Income Protection (IP)
  • An optional Ten-hour benefit on Mortgage and Living Cover
  • Enabling bundling discounts across Personal and Business
  • Adding level Life Cover projections to age 100

Here is an example of combining Mortgage and Living Cover with IP: Combining MLC and IP may be suitable for clients who want the advantage of not offsetting ACC benefits as well as some tax deductibility of premiums; or for self-employed clients who could manage basic oversight of their business in less than 10 hours a week; or for self-employed clients who are used to meeting regular tax obligations.  

Here you can download a case study helping explain the optional ten-hour benefit on Mortgage and Living Cover. Download MLC Case study

 

 


Australia: Insurers lose $3.4b because of disability income insurance

Collectively life insurance companies have lost close to $3.4 billion over the past five years as a result of the sale of disability income insurance to individuals. The Australian Prudential Regulation Authority is responding to ongoing losses of insurance companies by introducing capital charges, this will require life insurers to look into product design and pricing flaws. It will also require us to do the same, for although our IP experience is nothing like as bad as Australia's, that's no cause for complacency. People and policies are similar - and therefore have similar motivations and incentives.I would hate to see how our in-force IP book responds to an economic downturn. 

Click here to read more