AFRM Client Newsletter Q1 2022 - March 2022
Incredible to think how fast the start of the year has flown by, and that we are already heading towards the end of March 2022!
The new year brings with it ongoing challenges for our clients and our industry.
The COVID-19 pandemic continues to create economic uncertainty and many of our clients are continuing to curtail spending as a result. And now we have war in Europe creating further uncertainty!
These facts were vividly highlighted by the return of panic buying and stock shortages we all have no doubt witnessed in supermarkets in recent months; in the results of the ANZ-Roy Morgan Consumer Confidence survey released on 18 January; and also in various other media reports through January with headlines such as these:
The outlooks for investment markets and real estate are also uncertain, if we are to believe the various media reports we have been seeing lately (e.g. - An average mortgage might go up $1,000 a month in the next few years, warn economists, even as the RBA promises patience on rates).
On 18 January, ANZ Head of Australian Economics, David Plank, said:
“Consumer confidence dropped 7.6% last week as Omicron case numbers surged… Consumer confidence readings are usually positive during the month of January and the level of 97.9 is the weakest January result since 1992, when the Australian economy was experiencing sharply rising unemployment.
“We don’t think the economy is as weak as these data might suggest, with the shock of the Omicron surge and strains on testing capability the key drivers of the fall rather than underlying economic conditions. But the result highlights that concerns about COVID have the potential to significantly impact the economy if they linger."
For us at AFRM, these uncertainties only serve to underscore the importance of encouraging you, our clients, to keep appropriate financial risk management plans in place to ensure you and your families and businesses have appropriate “financial safety nets” in place should the worst happen to you in 2022 and you fall ill or have an accident and are unable to work.
Of course, we understand that some people are finding it tough and are looking to reduce their “discretional” spending. It is a common conversation with our clients in today’s economic environment.
Sadly, all too often, we see people looking at their life insurance premiums as the first and most obvious expense line item to delete from their family budget. However, we’d caution any client against simply throwing away your “financial safety net” – especially in such uncertain times.
It is important to always keep in mind that a financial risk management plan is not an “all or nothing” scenario.
We are experts in finding a “middle ground” ‒ a compromise ‒ that may not be as large an impost on your bottom line but that can continue to provide an ongoing financial safety net into the future.
There is a good chance we will be able to find you some savings by adjusting the structure of your cover while continuing to ensure your financial interests are protected into the future.
Of course, another factor for you to consider this year are the amendments introduced to the Insurance Contracts Act 1984, from 5 October 2021, as part of the Federal Government response to the findings of the “Hayne Royal Commission.”
Of significance, are the combined effects of amendments around the concepts in The Act’s “Part IV - Disclosures and Misrepresentations,” specifically:
Section 20B - The insured's duty to take reasonable care not to make a misrepresentation
“Relevant failures,” as defined by Section 27AA - Meaning of relevant failure of The Act (that provides a means for insurers to cancel contracts in the event of any failure by the client to disclose all relevant details to the insurer at the time of application and purchase of a new policy).
Of particular significance is the fact that the wording of Section 20B now says policy buyers (you) have a duty “to take reasonable care not to make a misrepresentation” when making an application to purchase a new policy.
We have heard from at least one major insurer that this change may well lead to insurers asking significantly more questions throughout the application process in a bid to close the perceived potential gap between the legal interpretations of the old full duty of disclosure and the new “duty to take reasonable care not to make a misrepresentation.”
To put it simply, under the previous “duty of disclosure” the onus was on the client to provide any relevant information to the insurer at policy application time.
Now, the new “duty to take reasonable care not to make a misrepresentation” places the onus on the insurer to ask clear and specific questions in a bid to discover all the information that it needs to know at application time.
The upshot is a much fairer outcome for clients, but given the expected increase in questions from insurers, it will also be a little bit more onerous for clients to navigate the insurance application process.
Apologies for going on a slight tangent here ‒ but the point is this.
The process of analysing and purchasing life insurance products is constantly changing and evolving BUT ALSO the value that can provided in terms of protecting your financial interests into the future remains as valid as it has ever been.
It’s a time for level heads and careful analysis by specialists who deal in the field every day.
So, if you are considering simply cancelling your insurance cover outright as a means to cut costs, may we please encourage you to reach out to us first. We may well be able to help.
Whatever the new year of 2022 may bring, we look forward to continuing to support you and to provide you with the absolute best outcomes possible.
Managing Director AFRM
Another good reason to engage an adviser when buying life insurance
Insurance News reported last month that the Australian Financial Complaints Authority (AFCA) had ordered AMP to reassess a trauma claim from a policyholder who was diagnosed with skin cancer, ruling the insurer acted unfairly when it relied on medical opinions from its own in-house haematologist to review the claim, instead of an external oncologist.
The 7 February 2022 report stated that AMP had rejected the claim, saying a benefit payment is made only if there is metastasis under the terms of the policy.
AFCA ruled that a claimant reasonably expects their insurer to fairly assess their claim.
However, its investigation of a formal complaint made by the claimant found that AMP did not ask the policyholder’s treating oncologist the relevant questions required, including whether his basal cell carcinoma (BCC), a form of skin cancer, had spread to a metastasis state.
The policy only pays a benefit for BCC if there is evidence of spread (metastasis) to other parts of the body.
In the standard claim form filled out by treating doctors, there were no questions about metastasis.
AFCA says it is therefore not surprising that the treating doctor did not express an opinion about whether perineural spread amounted to metastasis.
The insurer instead relied on its haematologist, who had claimed BCC “actually [has] a propensity to spread locally via perineural invasion” and that this “remains local invasion of tissue and is not metastatic spread.”
Significantly, a haematologist is a specialist doctor who treats conditions that affect the blood, and the organs that make the blood.
AFCA ruled that there is no reason to think that that the haematologist is an expert on cancer.
“There is nothing to suggest that an opinion on whether particular kind of cancer amounts to metastasis is within [the haematologist’s] field of expertise,” AFCA says in its ruling of the complaint.
“Even if he was a cancer expert the treating doctors’ opinion is most important and should have been obtained,” AFCA’s Determination stated.
AFCA ruled the insurer should not have rejected the claim until it had completed a proper investigation, including finding out what whether the treating specialist thought that perineural spread amounted to metastasis or spread to a distant organ.
AFCA ruled that AMP must compensate the policyholder $2000 for non-financial loss, noting the insurer’s conduct has caused a long delay. The claim was lodged in mid-2020.
AMP must also reassess the claim and in its reassessment, write to the policyholder’s treating specialist and put the definitions in the policy and Life Insurance Code of Practice (relating to cancer) to them.
AFCA’s full determination can be viewed here.
The news report and AFCA Determination do not indicate whether the policyholder had bought their trauma policy with the assistance of an adviser. However, we can only assume this was not the case given it was only resolved after a formal complaint was filed with AFCA.
On the evidence at hand, if these circumstances had arisen during any claim being managed by AFRM on behalf of any of its clients, we would certainly have not accepted the insurer’s initial ruling and would have ensured the insurer was forced to consider the opinion of the treating oncologist with regard to whether the cancer had spread or not.
If such a circumstance arose during any claim we were managing on your behalf, rest assured, we would not have taken a “no” from the insurer as an appropriate answer before exhausting multiple avenues at meeting the claims definition.
AFRM's most experienced advisers complete all FASEA educational requirements years before deadline!
No matter how you measure it the professional qualifications and experience of AFRM’s advisors are beyond question.
Financial Adviser Standards and Ethics Authority (FASEA) was established in July 2017 with the objective of making the financial advice industry more “professional” in the wake of numerous government reviews and industry scandals.
We have made no secret of our view that a number of the requirements introduced by the Federal Government back in 2017 when it established FASEA were ill-conceived and not well thought through.
From early 2019, AFRM Founder and former Managing Director, Nick Hatherly, published numerous communiques on the subject including his view that AFRM’s advisers did not need to improve their levels of service and professionalism because: “AFRM has always held the best interests of its clients as its highest priority for the more than 20 years we have been in business.”
And now, even though the Federal Government has now decided to scrap FASEA, introduce a single-disciplinary body for oversight (the Financial Services and Credit Panel) and perhaps introduce a new “experience pathway” for advisers with more than 10-years’ experience, we are proud to report that AFRM’s two longest serving advisers completed all of FASEA’s education requirements last year three years ahead of the original regulated deadline of 1 January, 2024 ‒ and five years ahead of the revised deadline of 1 January 2026.
“In February this year, AFRM adviser Phil Hatherly celebrated his 15th anniversary with AFRM and one of our Sydney-based advisers, Dan Musumeci, will achieve his 16th anniversary working with AFRM in May,” AFRM Managing Director, Rob Vitnell, said.
“Both men have proven their exceptional professionalism by completing all of the FASEA educational requirements as soon as possible. They certainly will not need to take advantage of the potential ‘soft option’ of an ‘experience pathway’ proposed in the Government’s Education Standards for Financial Advisers, Policy Paper, December 2021.”
“AFRM Adviser, Richard Dawson, also completed all of FASEA’s educational requirements last year ‒ while every single AFRM adviser has also already passed the mandatory FASEA Ethics exam.”
“These efforts demonstrate that while we at AFRM have always set ourselves a high benchmark for the level of professionalism with which we serve our clients, our team is certainly not resting on its laurels when it comes to our commitment to continuous improvement and professional development into the future.”
“I am also pleased to report that advisers, Sam Brennan and Chris Wlodarczyk and myself are also well on our way to completing all requirements well in advance of the deadline,” Rob said.
“We pride ourselves in the level of knowledge and expertise we bring to the table for our clients and Phil, Dan and Richard’s determination to have every education requirement completed as soon as possible demonstrates that commitment.”
Did you know you can get Critical Illness (Trauma) Insurance to provide cover for your children?
A referral partner recently asked us to put together a backgrounder on insurance products that provide Critical Illness (Trauma) cover for children in the Australian marketplace ‒ so here it is.
What is Critical Illness (Trauma) Insurance for children?
Critical Illness (Trauma) Insurance for children is offered by most of Australia’s major life insurers. The purpose is to provide a financial benefit (usually a single lump sum) to help cover the cost of medical treatment for your child in the event that they become seriously ill – or die.
Why a serious case of COVID could affect your insurance even decades from now
COVID-19 has affected all of us in numerous ways over the past two years, but did you see the media report in late January flagging the possibility that in the future insurers may implement exclusions for people who had suffered from COVID-19 at any time their past?
It was an ABC News report posted on 29 January 2022, with the headline – Why a serious case of COVID could affect your insurance, even decades from now.
The article’s premise was based on the fact that insurers currently have a range of cover exclusions for pre-existing medical conditions.
It argued that COVID-19 could be treated as a medical exclusion, even if the applicants had suffered the COVID infection decades earlier.
The article also noted that:
“Such exclusions, if they eventually occur, would be unlikely to apply to those with an existing life insurance policy unless they make changes or move to a new insurer.”
Now, I can imagine some readers may feel that such a hypothesis is just another media beat-up, but the article cited some well qualified academics to support its argument, including:
Jane Tiller, from Monash University's Public Health Genomics Program
Professor Julie-Anne Tarr, from Queensland University of Technology's Faculty of Business and Law; and,
Associate Professor of Health System Financing and Organisation, Martin Hensher, of Deakin University.
Ms Tiller was speculated upon a future in which a prior episode of COVID infection could impact levels of insurance cover available, even decades into the future.
"Because of the reports of long-term effects of COVID that we're seeing come through there might be risks in people being able to get life insurance," Ms Tiller is reported to have said.
"As long as there's evidence to support a differential risk, an insurer can use that to discriminate against someone who had that risk factor,” she said.
At AFRM, we have also witnessed insurers delaying eligibility for new policies for people who have contracted COVID-19. That is, persons applying for new policies are having their new applications delayed for 30 days - or even up to six months - until they are COVID-19 treatment and symptom free.
Once the required timeframe has passed, these people can then sign a declaration of good health and re-apply for the new insurance cover.
At least eight of the major insurers we write business with have implemented a one-month delay, as described above, for new applicants who have previously contracted COVID-19.
Further, at least one major insurer has indicated to us that it would require a six-month symptom free period for an applicant in the same circumstances.
It is too early to say what the future holds for people who have contracted COVID-19. Experts are still gathering data on the health impacts of the various strains of the virus.
This point was also noted in the 29 January 2022 ABC report.
Deakin University Associate Professor, Martin Hensher, cited United Kingdom research showing that one in 10 COVID-19 sufferers endured months of "Long COVID", or post-acute COVID syndrome.
He said that for a small portion of people there are signs that COVID has done tremendous damage to their bodies, and not just their lungs.
"They're seeing neurological damage and some people are seeing kidney damage," Mr Hensher said.
Significantly, the Financial Services Council (FSC) felt the need to comment on the news report.
Nick Kirwan, the FSC’s Policy Director - Life Insurance, reportedly said that if people had long-term health impacts from their COVID infection, insurers would likely take that into account; in the same way they currently do for people living with other long-term medical conditions.
However, Mr Kirwan added:
"You never know what's going to happen in the future.”
Accordingly, he said anyone concerned about how the COVID pandemic may affect their ability to obtain cover into the future should take out life insurance policies today to ensure maximum protection.
While we at AFRM may not always agree with what the FSC says, we do agree that the best way to avoid being caught by the potential exclusions raised in the news report is to be proactive today about your financial risk management strategy.
If you already have a financial risk management plan in place that includes insurance, ensure that your cover provides the appropriate level of protection for your forecasted life circumstances.
And if you don’t have insurance protection in place at all right now, then we would encourage you to reach out to us.
We’d be happy to assess your currently financial circumstances and to work with you to put in place an appropriate financial risk management plan.
Time and again in recent years we have seen that the best way to protect yourself against changes to the insurance market is to have existing policies locked in place before the change comes.
Having appropriate financial protections in place is the only sure-fire way of protecting your future, today.
We have often said that AFRM will always go the extra mile to ensure we obtain the best possible financial outcomes for our clients if the time ever comes that they need to make a claim on their insurance.
The following update to a previously published case study serves to illustrate that point well.
You may recall that in November 2021, we published a case study about our client, James, a middle-aged, married professional with two young adult children, for whom AFRM was successful in obtaining a lump sum Trauma benefit payment following James being diagnosed with prostate cancer.
This was a challenging claim to get over the line due to the fact that James’ policy was relatively new, having been established in mid-2020 in the wake of James wanting to reduce his levels of cover in order to reduce his annual premium payments.
The primary challenge arising when the insurance company chose to closely examine James’ medical history to ensure full and proper disclosure had been made at the time the new Trauma policy had been established.
The complexities of the claim were successfully managed by AFRM Claims Manager, Anthony De Lellis, and James received a benefit payment of about $300,000, representing a full settlement of his entitlement under the Trauma policy.
In the case study published last November, we also reported that as part of the review of James’ financial risk management plan, with the objective of reducing his overall premium payments, that AFRM also locked in for him a new Agreed Value Income Protection (IP) policy, which included a Critical Illness Option.
So, naturally, after AFRM was successful in getting James’ Trauma Claim accepted, we immediately raised the issue of his Critical Illness Option under his IP policy with the insurer.
Given it was the same company, AFRM also asked if the insurer’s same Claims Manager could assess the new claim and if the same medical information used to support the original Trauma claim could also be used to support the IP claim – politely suggesting that it would be somewhat onerous to require James and AFRM to go through the entire formal application and medical discovery process all over again relating to the exact same illness.