AFRM Client Newsletter Q3 2021 - September 2021
It is understandable in these uncertain times that when we talk to our clients about their financial risk management plans that often a client will say they want to cancel an insurance policy, purely as a cost saving measure, because they no longer want to keep paying the premiums.
On such occasions, we believe it is important to have relevant data to hand to share with our clients, so they can get a clear understanding of the very real level of financial risk they are facing.
As financial risk management experts we believe it is critical to be able to share real and relevant data with our clients to help them make informed decisions about their future.
And that is what I want to share with you here. Have you ever wondered just how expensive the ongoing costs of living are when burdened with the additional medical expenses following a cancer diagnosis or some other medical trauma?
Apart from the ever-present COVID-19 statistics that are constantly at the forefront of our minds these days, have you ever wondered exactly how many people do fall ill and get hospitalised in Australia every day? Ever considered what the actual numbers are?
Providing answers to these kinds of questions is exactly what we do at AFRM as specialist financial risk advisers.
Taking Trauma insurance as an example, it important to note that covering the cost of medical expenses is not the only purpose of Trauma cover.
Accordingly, the total sum you should be insured for when you hold Trauma cover should also consider other needs, such as an income top-up for the short-term if you are unable to work, providing short-term income for a spouse/partner to cease work to assist in care and recovery efforts, or to provide financial flexibility to scale back your work activities into the future.
For these reasons, calculating the total Trauma insurance amount should always be tailored to each individual client and will depend on personal/financial circumstances, as well as the client’s attitude to risk.
With that said, as I flagged above in this update I am going to share some numbers with you, so the next time you are wondering whether it is really worth continuing to pay your Trauma insurance premiums you, you have some hard numbers of the future costs you potentially face to consider.
The following data comes from impeccable sources, including the Australian Institute of Health and Welfare (AIHW), an independent Federal statutory agency charged with producing authoritative and accessible statistics to inform better policy and service delivery decisions for all Australians; and also a Health Research Whitepaper, commissioned by Zurich, called The cost of care: The missing link in the strategic financial advice equation, published in September 2018. This white paper also draws significantly on data produced by the AIHW and other evidence-based publications.
Let’s start with some facts drawn from AIHW’s Australia’s health in brief 2020 report, published on 23 Jul 2020, as a foundation.
We all know someone living with the burden of a chronic condition. You may well have one you are managing day-to-day yourself.
The fact is almost half of all Australians (that’s 47%, or more than 11 million people) have at least one of 10 selected chronic conditions and one in five (20%, or 4.9 million people) have multiple chronic conditions, based on 2017–18 estimates. The report says chronic conditions include illnesses such as heart disease, cancer, stroke, diabetes, arthritis and asthma.
Many chronic conditions are largely preventable because they share risk factors that are modifiable — that is, action can be taken to reduce the effect of the risk factor.
The three leading causes of death in Australia are coronary heart disease, dementia and stroke.
Coronary heart disease is still our leading single cause of death. However, from a financial risk perspective it is significant to understand that survival rates after diagnosis have increased. Meaning people need to be able to fund expensive medical treatments over many years.
The report says coronary heart disease accounts for about $2.2 billion a year in health care costs and, in 2017–18, was the primary cause of almost 161,800 hospitalisations.
In 2017, an estimated 61,800 people aged 25 and over had an acute coronary event (a heart attack or unstable angina)—around 169 events every day.
In 2018, CHD was the underlying cause of death for 17,500 people. This was 11% of all deaths, and 42% of cardiovascular deaths.
It is also important to note that cancer survival is improving. There are more than one million people alive in Australia who have previously been diagnosed with cancer.
The Australia’s health in brief 2020 report says almost seven in 10 people (69%) survived at least five years after a cancer diagnosis during 2012–2016 –– an improvement from about five in 10 (51%) people during 1987–1991.
The report also estimated that about 145,500 new cases of cancer would be diagnosed in Australia in 2020—an average of almost 400 people every day.
In 2012–2016, people diagnosed with cancer had a 69% chance of surviving for at least five years, which is lower when compared with their counterparts in the general population. However, this was an increase from a five-year survival rate of 51% in 1987–1991.
Increased survival is due to a number of factors, including improvements in treatments and care, and understanding and avoiding the risk factors associated with cancer.
Across the board, on an average day, Australians make 430,000 visits to general practitioners, fill 830,000 prescriptions under the Pharmaceutical Benefits Scheme and the Repatriation Pharmaceutical Benefits Scheme and there are 32,000 hospitalisations.
That is 32,000 people being admitted to hospital a day – every day of the year!
Between 2014–15 and 2018–19, the total number of hospitalisations in Australia increased by an average of 3.3% — this is faster than the average population growth of 1.6% over the same period!
Over the past two decades, the health sector in Australia has grown faster than the rest of the economy, as well as the population.
In the 20-year period to 2017–18, total health expenditure in Australia increased from $77.5 billion to $185.4 billion in real terms, and spending per person increased from $4,200 to $7,490.
But here’s where Zurich’s data becomes incredibly relevant.
It details the financial costs to people suffering from these various diseases. To me, it brings it all back to the personal, human, level.
It notes that while the majority of Australia’s total health expenditure burden is picked up by State and Federal Governments, individual Australians – and their families and carers – still accounted for around $30 billion of the annual cost.
Following is a summary of estimated financial costs of various diseases according to Zurich’s white paper:
Cancer represents 19% of the disease burden in Australia and is one of the most financially impactful. One in three Australian men and one in four Australian women will be diagnosed with some type of cancer before they turn 75.
There are 380 new diagnoses of cancer every day in Australia.
“The average lifetime cost for cancer sufferers aged 15 years and older, can range from $20,360 for melanoma to $95,460 for head, neck and thyroid cancers.”
“The average cost paid by the Pharmaceutical Benefits Scheme (PBS) per anticancer prescription has increased far in excess of inflation, and is currently $786.”
“Patients using drugs not supported by the PBS can face bills of up to $5,000 per month or more.”
“Around 72% of cancer carers report a negative financial impact of caring and more than half of carers who work full time need to take leave or reduce working hours.”
Diseases of the heart and arteries
Cardiovascular disease (CVD), which covers a range of conditions affecting the heart and arteries, such as heart attack, stroke and high blood pressure, is responsible for one death every 12 minutes in Australia.
There is one heart attack every 10 minutes and one heart attack related death every 66 minutes. There are 96 stroke events every day in Australia, of which 29 are fatal. A third result in some degree of disability.
“The average cost of coronary angiography with stent insertion, including hospital stay, is $21,790, of which Medicare pays approximately $1,960.”
“Over 128,000 cardiac angiograms are performed in Australia every year. The cost of an angiogram is approximately $13,247.”
“Each year, CVD is responsible for 84 million prescriptions at a cost of $3.3 billion.”
While out of pocket costs for heart attack and stroke can be smaller than other conditions (as a higher proportion is covered by Medicare), the indirect costs can be more significant.
“58% of primary carers of people with stroke related disability spend 40 hours or more per week in their caring role.”
“21% report a decrease in income due to their caring role.”
“24% incur extra expenses due to their caring role.”
“31% have difficulty meeting everyday living costs.”
Chronic respiratory conditions
Chronic respiratory conditions affect more than a quarter of the population. It is estimated that there are 2.5 million Australians living with asthma.
Another serious and costly respiratory illness is chronic obstructive pulmonary disease (COPD).
COPD is a condition that limits airflow to the lungs and is not fully reversible with the use of medication.
“Of Australians with lung disease, COPD contributes to almost one-third of all deaths and costs patients an average of $9,020 in out-of-pocket (OOP) costs per year.”
“78% of people living with advanced COPD experienced economic hardship from managing their illness and 27% were unable to pay their medical expenses.”
The data provided above relates to only a small proportion of the range of medical conditions and subsequent financial costs included in Zurich’s, The cost of care: The missing link in the strategic financial advice equation, whitepaper.
I have not even touched upon the personal financial costs of stroke, dementia or other conditions of the brain and nervous system. The data provided is intended only to flag good sources of hard data that can be used when considering the true value of ongoing Trauma cover. Again, all of the numbers provided are evidenced-based and formally sourced.
The point is not to scaremonger but to highlight hard facts that must be taken into account when considering the value of any financial risk mitigation plan.
The argument we hear often is: “Imagine if all of the money I have paid in premiums over the years was still sitting in my bank account? Imagine how much better off I’d be financially!”
That argument is only valid if you are fortunate and have not had to make a claim. It falls apart as soon as you find yourself in the unfortunate position of having to make a claim.
At AFRM, we are immensely proud of the fact that we have secured more than $200m in insurance claims paid to our clients.
In my mind it is not a question of whether or not you can “afford” to keep paying insurance premiums but more a question of whether or not you can afford not to have an appropriate financial risk management plan in place to ensure that you and your loved ones’ current lifestyle and financial security is protected into the future.
Managing Director AFRM
Ever considered a retrospective claim?
In the lead story of this quarter’s newsletter, I touched upon how common it is now for people to be so focused on reducing insurance premiums that they fail to consider the value of the financial safety net provided by that insurance.
Another factor to consider when contemplating your investment in the protection provided by your insurance cover is how often we at AFRM deal with what we, at AFRM, call “retrospective claims” on behalf of our clients.
These are cases in which it is only through discussion with our client that we discover a past medical event has occurred that merited a claim against that person’s insurance policies, such as Trauma or Income Protection insurance.
(As one of our clients you would appreciate that, by the very nature of our business as a specialist risk advice practice, you do not have a need to talk with us as often as you might with your other types of advisers. As detailed in the case study included in this newsletter [insert link], a review of your financial management plan is only required when your life circumstances change significantly. That is why we provide a review checklist on our website to help you recognise when it may be the right time to review the structure of financial risk safety net AFRM has helped you put in place.)
You may recall that we have published case studies on these kinds of cases in the past but more recently we have again dealt with a number of such cases, so it seems timely to again flag this issue.
Back in April 2019, we published a story about one of AFRM Managing Director, Rob Vitnell’s clients, William (named changed to protect client privacy). Through the course of a review discussion, that commenced with William flagging he was aiming to reduce his Trauma insurance cover, Rob asked William how he had been in terms of health and happiness through the past year?
William told Rob he’d been diagnosed with Type 1 Diabetes earlier in the year and was being treated with insulin injections four times per day. Diabetes is a chronic illness that requires lifelong management and carries with it an ongoing burden of out-of-pocket treatment costs. It is also a pre-cursor to other major disease, such as blindness, stroke, kidney failure and cardiovascular diseases.
For whatever reason, perhaps the fact that the impact of diabetes is a “slow burn” compared to the sudden impact of a heart attack or onset of cancer event, it had not occurred to William that this was a valid claim under his Trauma cover.
Soon after the Trauma claim benefit had been deposited into his bank account, William called Rob and said: “I paid off my mortgage yesterday and it feels great, thank you.”
“That is the value of Trauma cover,” Rob said.
“It allows you time. It allows you choice. It takes away emotional and mental stress on top of just the basic costs of medical treatment and various other things, including having a bit of time off work,” he added.
Financial stress as a casual factor in mental ill health among Australians (and subsequent delays in return to health) are well documented. Our clients often comment about a “weight being lifted off their shoulders” when they know they will be able to pay the bills as and when they fall due.
We have many other examples of our clients, at first, not recognising the true value of the financial safety net they have worked with us to create, not just for themselves but for their family, themselves, and even business partners in a number of cases.
This includes two more of Rob’s clients ‒ Paul and his wife, Julie (names changed to protect client privacy). This one was not so much a retrospective claim but one in which Paul initially never considered Julie, as a homemaker and housewife, would ever need Trauma cover. Then, several years after putting Julie’s cover in place, she was diagnosed with skin cancer, requiring surgery.
Paul suspected it may be a valid claim and called AFRM to seek our expert opinion. The Trauma claim we subsequently managed through to completion for Julie provided her and the family with a benefit of about $500,000.
That’s what we mean about Trauma cover taking away the emotional and mental stress on top of just the basic costs of medical treatment.
Another very recent case is a classic example of what we mean, both, about retrospective claims and about focusing on the value provided by your financial risk management plan, rather than just on the cost of insurance premiums.
This claim is still underway so we will keep my description of the case as broad as possible.
While scheduling a review meeting earlier this year, husband and wife clients, flagged they were concerned about the high cost of premiums and wanted to re-examine if the cover provided merited the outlay on premiums.
“During the subsequent review meeting, I asked how they had both been health-wise over the time since we had last caught up?” Rob said.
“The husband; let’s call him John, for the sake of this example; revealed he’d had a major medical episode several weeks earlier and had to be rushed to hospital in an ambulance. He’d even received shock treatment via a defibrillator on the way.”
Despite the seriousness of this incident, it had not occurred to John that this episode merited a claim under his Trauma insurance. The very same insurance that he had questioned the merit of continuing to pay the premiums.
“I had to counsel him not to make any changes to his current insurance policies until such time as we had investigated filing a Trauma claim on his behalf,” Rob said.
“I also had to point out that having had this recent serious medical episode may hinder his ability to get new policies on terms as favourable as those he already had.”
It is for this very reason that all of the advisers at AFRM make a point during every review meeting of asking our clients how they have been since we saw them last. Quite literally, something like: “Have you had a health event in the last year?”
Perhaps, the least you can do if you are thinking about making reductions in your insurance cover is to first have a full medical done by your GP or specialist doctor before making such a vital decision.
That’s exactly what AFRM adviser, Sam Brennan, advised a client in 2019 who wanted to cancel much of his cover. The subsequent medical examination revealed the client had prostate cancer! You can read that case study here.
At AFRM, we are proud of the value we add especially if, and when, the time comes that any of our clients need to make a claim.
We are proud of the fact that we have achieved well over $200m in claims paid to our clients. At the end of the day, what price can you put on the financial security of your loved ones and yourself?
A different way of thinking about the protections provided by your life insurance...
We are sharing this video with you not because we have any reason to recommend TAL over any of the other insurers we work with (that of course depends on each individual circumstance) but because we believe it features some valid messages about things you should consider when the time comes to review your cover.
It reminds us of the fundamental reason we put in place a financial risk management plan in the first place.
It’s not only about financially protecting your family and your assets, but it is also about protecting your way of life into the future.
That’s why at AFRM we use the slogan:
“Protecting your tomorrow, today.”
What would happen to the way of life you and your family has come to expect if you suddenly found yourself unable to earn an income?
Again, we are sharing this clip because we feel it provides some important reminders when the time comes to review your financial risk management plans about why it is we are creating that financial safety net for ourselves and our loved ones in the first place.
AFRM clients and referral partners know we recommend for our clients to have their financial risk management plans (and related insurance cover) reviewed every 12-18 months.
Doing so will ensure you have the policies in place to meet your current life circumstances.
It means we can refine your financial risk management plan to ensure you are covered for just the right amount, paying the right amount, and getting the best value from your policies.
That is why we provide a link to a review checklist on our home page to a series of questions to help you determine if it is time to have your risk management plan reviewed.
In our experience, the review process itself helps clients better understand their current life situation and to crystalise their thinking about future financial risk planning priorities.
As we have reported in the past, often a client may go into a review with a set plan of action in mind, whether that is to drastically cut back on levels of cover to reduce the level of premiums they are paying, or it is simply because their financial situation has changed, requiring a complete resetting of their entire financial risk management plan.
And that was very much the case for Bronwyn [name changed to protect client privacy], when she agreed to a review meeting with AFRM’s youngest adviser, Richard Dawson, earlier this year.
Bronwyn is a single, middle-aged, mother, working two jobs whose children had recently graduated university and had become financially independent.
Her financial adviser had prompted her to reach out to AFRM because a review of her financial risk management plan was well overdue.
Bronwyn, herself, had a specific goal in mind. She wanted to significantly reduce her levels of cover because in her view, with no financial dependents, her life insurance and Income Protection (IP) cover had become less relevant.
Bronwyn wanted to reduce her premium levels to allow her to pay down increased levels of debt, thanks to the purchase of a new property, and she also wanted the ability to increase her superannuation contributions if possible.
Through her superannuation, Bronwyn held a Term Life policy with a benefit amount of more than $500,000 and an Income Protection policy offering a maximum benefit of about $6,000 per month for five years – both of which had been put in place almost 10 years ago, at a time that she had minimal debt. The benefit levels of each policy were also indexed and thus increasing every year.
Bronwyn’s mindset when going into the review meeting with Richard was clear – living alone in a relatively new home with no financial dependents, Bronwyn saw little need for her current levels of life or IP cover. The funds currently being spent on premiums could be redirected to paying down her mortgage.
At the outset of the review meeting this year, Richard revisited the last review she had had all those years ago and the discussion held at that time.
Back then, the focus of Bronwyn’s risk management plan was to ensure that if anything happened to her there would be sufficient ongoing funding to pay for her children’s education.
Despite Trauma and Total and Permanent Disability (TPD) insurance cover being included in the discussions, Bronwyn decided that the IP cover would be sufficient to support herself and her children in the event of disability and death cover would provide some life-start support for her children, who were soon to begin in university.
Fast forward to 2021, with children now fully independent and finished studies, Bronwyn was now focused on her own financial goals and remained exposed to the risk of being unable to work; and in that event would be unable to paying off her now larger mortgage; or be able to generate sufficient wealth to live a comfortable retirement.
The subsequent discussions explored what risks Bronwyn faced in reaching her financial goals, and what each product could protect in each risk scenario. It was clear that a balance between reduction of premiums and mitigation of risk needed to be found.
Richard educated Bronwyn on how each product functioned, how it could be structured and how some trade offs between cost and comprehensiveness were more important than others, such as the ability to hold Death and “any” occupation TPD inside superannuation tax effectively, but “own” occupation coverage would be required to be held personally.
An increase in the Income Protection waiting period was also discussed with a view to reduce premiums. A waiting period is the length of time you must wait after an injury or illness before you start accruing IP insurance benefits.
Despite the absence of available cash savings to support herself in this scenario, Bronwyn had spoken with her sister recently and had determined that she would be able to rely on family for living costs during a waiting period.
This strategy, although not ideal, is an example of a compromise, achieved via review discussions, that can strike an effective balance between saving money and risk protection.
After each option was discussed, Richard and Bronwyn gained a mutual understanding of which factors posed the most risk to Bronwyn, but also which elements of the possible risk mitigation strategies Bronwyn valued most.
Accordingly, a risk management plan was carefully developed to satisfy all of Bronwyn’s needs in a reduction of premiums, while mitigating remaining risk.
Further, Richard was able to review some of Bronwyn’s broader circumstances, such as her estate planning arrangements. While Bronwyn did have a will in place, it was written while her children were dependents and had not been updated since they had become financially independent.
Richard flagged that there can be tax implications for death benefits, including superannuation balances being paid to adult children. Bronwyn was surprised to hear this and welcomed that Richard refer her to an AFRM recommended estate planning lawyer to get the best possible advice.
If it wasn’t for the review discussion, Bronwyn may have simply cancelled all of her coverage or may have continued to rely on an aged and unsuitable risk strategy. This review, leading to a change of products, re-calibrated Bronwyn’s balance between risk protection and healthy generation of wealth.
Once again, this story illustrates the importance and value provided by having your current financial risk management plan reviewed with one of AFRM’s expert financial risk advisers.
Bronwyn came into this review with a firm plan of heavily cutting back her level of cover purely to reduce premium expenses so that she could re-allocate those funds towards paying off her mortgage and increasing her superannuation contributions.
A talk with AFRM’s youngest risk adviser opened a range of new opportunities that Bronwyn was not aware of to achieve the same result, without sacrificing her future financial security.
That is the value of obtaining expert financial risk management advice.