IP underwriting is complicated – improving, but complicated

The post-Covid IP world could remain complex for some time says Russell Hutchinson.

Wednesday, May 27th 2020, 8:00AM

by Russell Hutchinson

Partners Life came out with some pretty tough restrictions on its income protection product range just before the Covid-19 crisis broke.

As the country went into lockdown, more restrictions were added. In an announcement recently, many of those were reversed or eased.

During the lockdown several insurers were similarly cautious about underwriting new income protection business – reflecting the changed circumstances of clients.

Advisers in touch with me provided examples of cases where AIA, Asteron Life, Cigna and Fidelity Life were also restricting access to certain products or imposing conditions on new income protection policies due to the uncertainty of the situation.

What a situation it has been!

Not only did income protection already suffer from fast-rising premiums and questions being asked by regulators on both sides of the Tasman, but then there were the direct concerns about Covid-19 at a time when very little was known about the virus.

Now we have effectively contained the problem in New Zealand, the economic effects are those that remain to be managed.

While we must all make guesses about the future to operate our businesses, insurers are no more seers or fortune tellers than you or I. Incomplete and changing information is difficult to manage.

Overseas there is strong evidence of excess mortality – more people dying than expected for the time of year, and that this number is greater than the amount explained by Covid-19 deaths.

Although work is going on to understand the rise in mortality it seems that some of the unexpected rise in deaths is due to Covid-19 and some is due to indirect effects – people staying away from hospitals when they should be attending an ER due to chest pain for example.

There is limited evidence of that happening here. Deaths are running slightly above trend, but not at a rate that can be considered statistically significant, yet.

Concerns that suicide might rise sharply during the lockdown were refuted by a release from the coroner. That’s good news.

However, in spite of prompt action by the Government on Covid-19, 2020 will be no picnic. Downturns are miserable for people that lose their jobs, businesses, and suffer the flow-on effects from those.

New Zealand has done well, but we are not immune to these effects. They will not be tidily restricted to fatal maladies either: effects of the response to Covid-19, and the global downturn associated with it, will play a part in sickness and disease that can lead to income protection claims.

Treatment that was deferred by the health service while it braced for many Covid-19 infections will need to be done. The effect of delay will worsen conditions for some.

One of the consequences of this is that income protection underwriting is now the most complex and varied form of underwriting that there is.

As insurers work to calibrate their underwriting practices to the dynamic environment there will be more variability in decisions.

Advisers with relationships with multiple insurers will do well to closely monitor the different appetites shown by underwriters for different risks, and place business accordingly.

It will remain complex for some time to come.

Tags: Income Protection Opinion Russell Hutchinson Underwriting