First look at new era Income Protection policies post 1 October 2021
You will know from your own businesses, that it is a lot easier to give clients great advice (and outcomes) when times are good.
You will also know that your true value to clients is epitomised by the advice and outcomes provided in times of change, challenge, and uncertainty.
In last month’s referral partner update, I told you about the tough conversations we are all having with our clients about increasing insurance premiums and the approach we at AFRM have taken to address it.
I also told you about the largely positive response to this approach we have been getting from our clients.
I am pleased to report this approach has also been positively received by our peers in both the insurance and even mental health sectors.
For example, Mark Mantineo, Business Development Manager at ClearView Wealth Limited, sent a very kind message to me in response to my posting to LinkedIn my 22 September Special Communique to AFRM clients.
Mark has kindly provided permission for me to share his message with you now:
“Rob - this is one of the best personal stories I have read - Thank you for sharing.
I can relate to everything you mentioned about need and affordability and the conclusion you and your wife came too. Well done!”
Now, I know, I have been pressing the issue of insurance premium hikes for quite a while now but I really do believe it is crucial that in any talks with clients who may be pushing back on premium increases, that we have a duty and obligation to remind our clients of the real value that exists in any existing policies they hold – especially IP policies – given the changes forced upon IP products by the Australian Prudential Regulation Authority (APRA) in recent years.
At AFRM, we have taken the opportunity to research a number of the new IP products released into the market from 1 October 2021 and I wanted to share with you some of our initial observations.
The new normal is that there is no “normal.”
The first observation is an obvious one. We now find ourselves in a whole new world when it comes to Income Protection (IP) insurance.
Consider for a moment that all of the products that were previously in the market had been there for some time. All of the insurers knew what their competitors were offering and over time product offerings had conformed under a “Best of Breed” approach. This made like-for-like comparisons of the market product offerings somewhat consistent (even stale), and price played a greater role than it ever had.
Choosing a product based on price alone is an assumption we all must throw out the window straight away.
Pushing toward the 1 October 2021 deadline set by APRA, insurers have developed their new IP products in isolation. A review of the new product disclosure statements (PDS) released on, or in the lead up to, 1 October 2021 make that fact abundantly clear. There is now significant variation in the terms and conditions offered by each insurer and the terminology and wording used is also no longer consistent across the board.
The last time we saw this much variation in the Income Protection market was the mid-to-late 2000’s, when a couple of insurers had significantly better products than the competition. We are now seeing this again. In time, we believe that there will be a move back towards “Best of Breed” as the market works out what resonates with clients ‒ and what does not.
New PDSs terms, definitions and phrases create complexity.
Looking past the mandated restrictions imposed by APRA on the new Income Protection products, the biggest challenge is the complexity created by the different approaches from insurers.
A simple example of what I mean by is the phrase “Total Disability.” Compared to previous iterations, it is no longer closely aligned across the new market.
For example, TAL now uses the term Totally Unable to Work in its PDS [page 47], while ClearView simply uses the term “disability” [page 53 in its PDS], and Zurich uses “Total disability” relating to “sickness or injury” [page 30 of its PDS].
While the naming conventions used for specific terms is not such a significant issue, it is the specific wording now used under each definition which needs close attention and comparison.
These have changed from a variation on the industry-wide three-tiered “hours, income or duties” definition of total disability. By this I mean that qualification for a benefit was previously assessed on either reduced hours, income, or ability to perform income producing duties. This type of assessment has been in the market for close to 15 years. Our extensive claims management experience means we have been well-versed in how to manage claims for our clients on this basis.
New products now contain different wording such as: “…unable to perform the Material and Substantial duties…” or “…unable to perform each and every important income producing duty;” plus a host of other different approaches that are too numerous to mention.
Other significant challenges, when it comes to claim time, will lie in the switch from assessing the client against their ability to perform in their own current occupation, to an assessment against ‘any’ occupation that the insured is reasonably suited, including with rehabilitation and retraining programs.
The majority of insurers in the market are introducing this assessment switch after two years on claim, which creates yet more complexity at claim time (although one insurer we have particular interest in does not do this at all).
In a number of cases, in the PDSs we have studied to date, the insurer reserves the right to intervene in cases where the claimant has been on claim for an extended period of time and has not been showing signs of improvement or a return to wellness.
Most new policies require the claimant to be participating in a formal rehabilitation or recovery management program that is approved by the insurer.
For example, TAL says:
Rehabilitation Program means a program or plan:
• designed to assist the Life Insured in returning to a Working Occupation; and
• developed by an appropriately qualified vocational or occupational rehabilitation specialist.
General medical consultations and medical therapy consultations, including but not limited to, physiotherapy, psychotherapy and hydrotherapy, are excluded.
While Integrity says:
Recovery Management Plan means a formal plan established in consultation with the Life Insured, their Medical Practitioner(s) and us for co-ordinating and managing those aspects of injury/sickness that concern the treatment, rehabilitation, retraining and maintenance and/or restoration of Work Capacity, for the purposes of assisting in achieving a timely, safe and durable return to health and work.
The implications here are significant. It gives rise to the potential for an insurer to stop payment on a claim if it is not satisfied that the claimant is meeting this new obligation
Other significant factors we observed among the new IP products are:
Insurable income definitions are not standard across all products,
Monthly benefits payable formulae are not standard across all products, and;
Waiting periods and benefit periods are not standard across all products.
As AFRM’s Paraplanning Team Leader, Lindsey Lawrance, has observed:
“It is hard to understand what the insurer’s intent is for a number of the new clauses, without actually asking them. The wording has also become less ‘black and white’ and leaves the door open for the insurer’s Claims Managers to use more scope in their interpretation on claims (compared to previous policies), especially with the rehab and retraining requirements.”
“AFRM’s claims management expertise will really come to the fore in advocating for clients under these new policies and keeping the insurers to task on claims management and what are appropriate outcomes for our clients.”
We are still working our way through all of the new products in the marketplace, and we are busy reaching out to insurers to get clarity of the intent behind a range of the new policy terms and conditions.
However, at this stage, we believe our observations of the new products to date only serves to reinforce the messages we have already been sharing with you and our clients for many months.
We see a trend towards smaller benefit amounts being payable, policy terms being less generous, the claims process being more challenging, with more documentation required to get a claim over the line than what was required pre-1 October 2021.
For us, this reiterates the significance of our previous messages on this subject. If your clients have existing policies – especially IP – it is critical to seek to have them understand that these “old” policies do represent real value compared with new products we have reviewed to date.
So, before you agree to any client simply cancelling a policy because they are not happy with increased premiums, please let them know that there is a middle ground. A way for them to retain the real value and more generous benefits offered by existing policies but also to potentially reduce their premiums to a manageable level.
We can provide advice on how to do that. At the very least, encourage them to have a full medical check-up before making any decision on cancelling a policy – because once it is gone, that level of protection can never be brought back.
And, of course, feel free to refer clients to us for advice on the new IP products on the market, all advisers and paraplanners at AFRM are making it our priority to fully understand the new products in the market to be able to make appropriate recommendations to meet every client’s individual needs.
In a time of change, challenge and uncertainty, the true value of having specialist risk advice is more important than ever.
Sincerely,
Rob Vitnell
Managing Director AFRM
Case Study:
Often in our communications we talk about the importance of having regular reviews of your financial risk management plan and the need for those plans to be amended when they no longer fit your specific life circumstances.
Routinely we advise that cancelling your current insurance products should never be done without thorough consideration and at least a full health check before you do so.
The prime reason for that is that when applying for a new policy your full medical history to date is often required as part of the application process ‒ with any past conditions/injuries potentially resulting in an exclusion in your new policy ‒ and also because there is currently a trend for insurers to be less generous in the benefits and definitions included in new policy products in the marketplace as they strive for improved financial sustainability.
So, there is always a chance of any new policy you are successful in applying for being less generous in terms of the benefits you receive if you ever need to make a claim. Further, it could be that the hurdles you need to jump to make a successful claim may be higher than they were for your previous policy.
Of course, these are just general observations and every individual client’s situation is different.
Enter stage left, James [name changed to protect client privacy.]
James is a middle-aged, married professional with two young adult children. Financially, he is doing well and (as is often the case in recent years) he and his wife Margaret [name changed to protect client privacy] contacted AFRM because they wanted to reduce their levels of cover.
Their rationale was influenced by a range of factors including wanting to reduce the amount they were paying out in premiums but also because they felt their family’s collective life circumstances had changed sufficiently that they no longer needed James to have the high levels of cover that he did when his children were younger.
Margaret had also re-evaluated how much funding she would require to continue to live comfortably in the event of James’ untimely demise. She felt she simply didn’t need the level of funding his current financial risk management plan would provide.
They met with their AFRM adviser, Chris Wlodarczyk, in mid-2020 and asked to get quotes on new life insurance policies that provided about half as much cover as the family previously had.
Naturally, Chris walked James and Margaret through every possible scenario to ensure they had thoroughly thought through their decision.
Ultimately, Chris followed the direction provided by his clients and sought quotes for potential new policies for James.
After several months of consideration and comparisons, James locked in a new Agreed Value Income Protection (IP) policy, which included a Critical Illness Option, after going through the full medical disclosure process at the time of application. By this time, it was late in the third quarter of 2020.
Fast forward to late February, this year, and James called Chris to let him know he’d just been diagnosed with prostate cancer, and he’d be seeking to schedule surgery as soon as possible.
Chris immediately triggered the claim process by flagging the situation with the insurer advising that the biopsy report showed the maximum possible “Gleason score” of seven. In Chris’ view, this diagnosis would certainly mean that James’ condition would fit within his policy’s “Cancer (excluding early-stage cancers)” definition. He asked the insurer if it agreed with his own interpretation of the policy wording so that he could progress a formal claim as soon as possible.
It seemed to be a fairly straight forward claim process, however, there was a delay in James completing the claim forms because, sensibly, he took several weeks to choose the surgeon to perform his operation.
Between March and June, a number of things happened, including:
Chris advising James of the appropriate medical practitioners to complete the relevant claim medical reports and also informed James he didn’t need to wait until after his surgery to formally file his claim.
James undergoing surgery in April
AFRM Claims Manager, Anthony De Lellis, was appointed to take over the management of James’ formal claims process.
A significant factor in the handover notes provided by Chris was the fact that only a couple of months after securing his new IP policy, James discovered that his now deceased father had survived a bout of prostate cancer back in the early 2000s.
For those not aware of the significance of this scenario, to summarise, when assessing an application for a new insurance policy, the insurer seeks to know all significant medical issues in the family’s history as a means of determining the level of risk they are taking on. The person applying for insurance has a duty to disclose all relevant information requested by the insurer ‒ but only to the extent that the client is reasonably aware of the information to disclose.
Using his decades of claims management experience, Anthony anticipated that despite James being unaware of his father’s medical history at policy commencement, the insurer would still thoroughly investigate the circumstances around this Critical Illness claim, as they have every right to do.
Accordingly, he worked with James over a period of months to ensure every possible medical report was sourced and provided to support his claim.
Also, at the time of first filing the completed claim forms and initial medical reports in June, Anthony advised the insurer of the additional family medical history regarding James’ father and confirmed that James had only discovered this information about six months after securing his new IP policy.
Anthony’s foresight was vindicated when the insurer soon after requested James’ Medicare claims history for the three years prior to his claim (suggesting the insurer was seeking to check if there had been any omissions in the information provided at the time James first applied for the new policy in 2020).
As part of its due diligence investigating the claim, the insurer also asked that James produce a copy of his original policy document with all of the terms and definitions included.
Anthony advised James that if he could not locate a copy of his original policy document, the best course of action to expedite his claim would be to complete a Lost Policy Statutory Declaration Form as soon as possible.
These are the kinds of technical issues that AFRM claims managers are aware of that help ensure the swiftest possible outcomes for our clients.
By this time James was also attuned to the insurer’s due diligence process, so when he provided AFRM with his past three-year Medicare claims history he added to that a full timeline of all of his interactions with medical professionals not only over the requested time period but also through to his prostate surgery in 2021. He also inserted into that timeline the date of his discovery of his father’s history of prostate cancer and how that influenced subsequent follow-up visits to two separate urologists that eventually led to his diagnosis.
When AFRM’s Anthony De Lellis submitted the requested three-year Medicare claims history to the insurer, he went above and beyond with the documentation and information provided. In addition to the Medicare claims history document, Anthony also submitted primary documents including:
an MRI scan,
four years’ worth of blood test results from 2018 through to 2021,
a copy of the original referral from James’ GP to an urologist back in 2018
five separate medical reports from two separate urologists dating from 2018 through to late 2020; and,
James’ timeline of all of his interactions with medical professionals from 2018 through to his surgery this year.
When Anthony followed up with the insurer two weeks later, he was advised the insurer was comparing medical information provided at the time James applied for his new policy with the Medicare claims history ‒ and further ‒ it had also contacted James GP direct seeking a further report.
By August 2021, AFRM’s Anthony again followed up with the insurer seeking an update on progress of the claim, only to be told that the insurer was still awaiting the additionally requested report from James’ GP. Anthony immediately advised James, who of course, followed up with his GP.
A further two weeks later, the insurer advised Anthony that the claim file had been referred to the insurer’s underwriting team to review the disclosures made by James at the time of making the application for the new policy.
These kinds of interactions with insurers demonstrate why AFRM claims management service protects its clients from suffering undue stress and anxiety while they are rehabilitating after serious illness.
Jump forward to the end of August and the insurer finally advised Anthony that James’ Critical Illness claim had been accepted and was awaiting final authorisation.
A week later, Anthony again followed up with the insurer seeking an update on when final formal advice would be provided confirming when the benefit would be paid and the benefit amount.
Almost exactly one hour later, the insurer provided Anthony with the formal payment letter for James, which stated he would be receiving a benefit payment of about $300,000, representing a full settlement of his entitlement under the policy.
Of course, Anthony immediately advised James of the news, plus he advised that there would be an additional refund of premiums to come soon after [about $1500]. Anthony also asked James to note that his policy did have a “Buy Back” option that was detailed in the formal payment letter from the insurer.
The next day James was able to confirm that the funds had been deposited into his account, adding:
“Thank you very much for handling this for me!”
James’s gratitude also extended to his AFRM adviser, Chris Wlodarczyk, whom he contacted soon after, requesting further advice relating to his financial risk management plan and related insurance cover into the future.
James said:
Hi Chris,
Thank you very much for setting up my insurances in the first place and then for your help during the initial stages of the critical illness claim which has just come through successfully. I really appreciate your help!
I'd like to setup a meeting with you to discuss the next steps. That is, in terms of an understanding of what's the current situation regarding the covers I still have (if any) and what would make sense for the future….
Thanks again and best regards,
James.
Chris subsequently shared news of Anthony’s successful claim management with rest of the AFRM team to acknowledge a job well done.
Chris said:
…It was a tricky one given that the policy went into force just recently and the client had some medical checks around time of application.
Just wanted to make you aware of Anthony’s great work and another claim paid.
For Anthony, the key to the success of the claim was assessing the unique circumstances of James’ situation, having a relatively new policy, and also discovering the family history of prostate cancer only after he had gone through the discovery process while applying for the new policy. Anthony anticipated intense scrutiny of James’ medical history.
“Basically, I took my AFRM Claim Manager hat off and put on my insurance company Senior Case Manager hat on,” Anthony said when all was said and done.
“Based on my background, knowledge, and experience, I knew that we needed to request additional medical information from the James’ GP above and beyond what the insurer had already requested, and I explained to James that we would also need to request from all of his medical practitioners’ copies of all of his clinical notes for the past three years, including all blood test results and medical reports.
“This allowed me to undertake the full assessment of his claim and to review the underwriting/disclosure aspect of his claim. And upon receipt of all the clinical notes, I was satisfied that James had no disclosure issues that could warrant any further investigations and that the client’s claim would be approved by the insurer.”
“I explained to James that while the process of gathering all of the additional documentation might be time consuming at the outset, it would ultimately save a lot of time with the insurer in the long run. I also let James know that the entire claim process required the insurer to undertake all possible due diligence while assessing his claim ‒ which they certainly did,” he quipped.