QPR Update V106

We have recently distributed the QPR database to subscribers and have also updated Quotemonster with the following changes:

  • BNZ - Policy Amendment 1 Sept 2017 Life, TPD, Trauma and Income Protection
  • Fidelity Life Policy Wording updates. No rating change
  • Exclusion Definition review of all products

QPR Database Update

There have been a number of updates done in the QPR database recently (QPRV104) and subscribers now have access to these changes which include:

  • ANZ new policy wording added for Life.
  • BNZ new policy wording added for Life, TPD, IP, and Trauma. Main change to heart attack definition for Trauma.
  • AIA new policy wording added for Life, Trauma and TPD.
  • AIA Business Life and Business Trauma Standalone reviewed (Accelerated is still under review)

Research on Quotemonster also reflects the changes with are applicable.

UK: Catastrophic injury compensation, massive payments required under new rule

The UK has a revised the basis for a calculation of the payments required for catastrophic injury, resulting in a massive hike in the amount required. The changes proposed are interesting in themselves, but they remind me of the issues when planning TPD requirements. 

First, the UK: the Financial Times has a good review of the issues, but briefly, the expected rate of return is a factor when calculating the amount of lump sum compensation that can be ordered by the court (remember, no ACC). The rate has fallen from 2.5% to -0.75%, because negative real rates of return have been the norm for so long in the UK. That means that for a young person completely incapacitated the required payment rose from about GBP 8million, to GBP30million. It may not stay there, the insurance industry is arguing against the change. 

The direct planning lessons for New Zealand are limited, but the differences are helpful. ACC must, obviously, be taken into account - but this varies with age, as well. Total and Permanent Disablement from non-accidental causes at young ages is quite rare, but at older ages more common. TPD requirements are likely to outstrip life insurance requirements considerably, even after taking other compensation into account. Standalone TPD should probably be the norm. I was talking with a couple of advisers about this recently, and the folks at quotemonster have had it on their list to change for quite a while - they plan to get it done within the next couple of months.

Recent Product Updates

We have just uploaded the Quality Product Research Limited database QPRV10.1 to Quotemonster and subscribers. This version included the following changes:

ANZ Trauma Cover:

Policy wording also updated to the most recent document in the database, standalone cover.

ASB Mortgage Protection Review:

Review & change made to Offsets / Mental Health Limitation / Partial Disability provisions

Asteron Life

Enhancements of Trauma, TPD & Mortgage Protection for Business and Personal  products (effective 19 June 2017)

Kiwibank Mortgage Protection Cover:

Product has been rated & policy wording uploaded to database

Westpac Trauma (accelerated only)

New score added under ‘Diagnosis & Partial benefit’ to capture ‘minor heart attack’

Sovereign Critical Illness 

Updated pricing is being tested and will be applied to Quotemonster by tomorrow morning. The policy wording for these product enhancements has not yet been reviewed and will be reviewed and updated by 26 June, the QPR database will be updated again during that week. 



Another Approach to Life Sum Insured Calculation

Here is another approach to life sum insured calculation. I quite like the cut-to-the-chase simplicity of it, and the recognition of the practical implication of a low inflation/low return environment - the discount to the lump sum required to provide an income is not so big these days. 

What does bother me is the focus. Life, life, life. Where is TPD, IP, and most crucially: Trauma. While setting IP sums insured is relatively straightforward given the twin caps of insurer maximum and client budget, setting trauma sums insured is a lot harder to manage. The 'buy as much as you can afford' argument runs into too much trouble, too quickly: what you can afford is shaped by the argument you make for having it, which comes back to the hunt for a simple, yet strong, basis for how much you need. 

Recently one adviser said that in discussion with an oncologist they felt that it took two years in more than 90% of cases for the client to either recover or to progress to a terminal stage with most serious cancers - which form the basis for between 40% and 65% of all trauma claims. That seems like a good place to start, and the way to approach the client? "What would you like to be able to do during those two years? How much would that cost?"

More TPD Claims Data Needed

A lot of advisers do not like Total and Permanent Disablement Cover (sometimes called Lump Sum Disablement). Academics and risk specialists, backed up by a lot of advisers more used to the Australian environment, think TPD is a product that should be sold more. A quick look at the industry data tells us a couple of things:

  • not enough information is shared about TPD claims to enable a reasonable assessment to be made
  • the advisers critical of TPD are therefore probably right to shun it

An adviser asked us recently to tell them how many TPD claims are paid each year. Unfortunately that data isn't shared in the annual public data offered by the FSC. What is shared is a category that includes both "Claims and Expiries." For rate-for-age term the proportion of "expiries" will be low, for TPD with a typical expiry age of 65 it will be high, whereas rate-for-age life does not expire. 

Looking at the quarterly public data we can see the amount of benefit payments. At just over $3 million for the most recent quarter you can begin to estimate the claims rates. Link

Assuming something like the smallest plausible sum insured, $50k per policy (to be as generous as possible on claim rates) you get to about 60 claims a quarter, say 240 a year. With just over 66,000 benefits in-force at the end of Q3 2015 (link) the rate of claims as a proportion of all in-force (a crude measure, I know) is about .36%. For life cover the equivalent numbers are 1,596 "Claims and expiries" in the quarter, giving a rough annual rate of 6,384, with 1.094 million in-force contracts. A much higher rough rate of claim. 

The solution for insurers who would like to sell more TPD is therefore obvious. Convincing advisers and consumers that they can rely on the circumstances in which they will out depends on sharing a lot more claims data. Do that and you can probably sell a lot more of the stuff. 

AIA Product Changes - Summary

Pricing Changes

The most interesting change in the overall package is a new discount structure. An old discount structure mainly focused on income protection and mortgage protection benefits has been removed and a new variable discount structure of up to 12.5% has been implemented covering life plus Trauma, Income Protection, Health, and TPD. This probably provides more incentive to broaden the cover base for a client across a range of covers, and offers at least some discount to those that choose not to take Income Protection, which is a substantial majority, sadly. 

Other pricing news

  • the policy fee (on which no commissionis paid) has been increased from $6.95 to $7.95. 
  • the base rate table for Income Protection mortgage cover has changed

We will review the full impact of the pricing changes in the premium comparison tool for insurers. The pricing will be live on the 12th of October on Quotemonster.

Product Changes

New Product Names

AIA will be renaming product set to REAL before each product name. e.g. REAL Life Cover, REAL Trauma Cover. The Product naming will be launched 30 September and rolled out over time

New Health Product: REAL Health

  • AIA is launching a new Health Product called REAL Health
  • Premiums are calculated on a Yearly Renewable Term based on Age, Gender and Smoker status. 
  • Individual premiums apply for each Life Assured, including for each child. A dependent Child will become subject to adult Premium rates on the next Policy anniversary date after they each age twenty one (21).

Pre-launch and Enhancement of Product: Loss of Earnings Premier

  • ‘Premier Income Protection’ is being re-launched as ‘REAL Loss of Earnings Premier’
  • Product has been enhanced:
  • Enhanced pre and post disability income wordings
  • Added Optional Involuntary Redundancy benefit

Total and Permanent Disability Cover Personal

  • New to age 70 option
  • Quote either to age 65 or to age 70
  • from age 66 – 70 definition based on activities of daily living
  • New Special Events Increase option for Residential investment properties

Total and Permanent Disability Cover - Business

  • New to age 70 option
  • Quote either to age 65 or to age 70
  • from age 66– 70 definition based on activities of daily living

Life Cover – Level 15/80

  • Allow accelerated Trauma & TPD with Level 15/80 Life Cover.

Mortgage, Income and Rent Cover

  • Optional CPI added to all options
  • Mortgage
  • Income 
  • Rent

Income Protection

  • AV, Indemnity, LOE Premier • Optional involuntary redundancy benefit for IP AV, Indemnity, LOE Premier – New benefit
  • 6mth benefit period
  • 6mth stand down period from Policy Commencement Date
  • Payable after 30 days of unemployment 
  • $2,500 or your sum assured whichever the lesser

Trauma - Personal

  • New inbuilt children’s trauma benefit
  • 20% of Life assureds Sum Insured up to $50,000 whichever is the lesser.
  • Keep current optional benefit - $75,000 / flat fee
  • Change ‘Optional’ to ‘Top Up’
  • If top up benefit selected $75k is in addition to the in-built portion - maximum benefit of $125,000.
  • Added conversion option for children turning 21

All the product changes are being rated and will be reflected in AIA product ratings from 12 October.