[GRTV] Depressing imbalances in IP market: Hutchinson

The sustainability of income protection is so important to the NZ market and we all need to play a part in this discussion.

Maybe some of the things to debate are: should we have ratios of 40-45% as mortgage repayment where ACC is not offset. Should we have product paying out for broken bones when a client is actually not off work.

If you are an adviser with a client on claim receiving these then absolutely we want this for them however as people do age , costs balloon could we remove these features.

I agree the Rolls Royce product is not always sustainable all but desirable.

Also can we do more around mental well-being when clients are on claim. Advisers involved in the claim experience can make such a difference here. Absolutely wholeheartedly agree a number of claimants experience longer periods on claim when mental health comes in as a secondary condition.

We need to do all what we can to ensure our reinsurers know we are still a different market to that of Australia. Where a lot of their income product is now included in their supers and or with little or no underwriting we don’t experience this in NZ our product generally is fully underwritten. It’s a great conversation Russell and Phil thank you.

Agree Kat!

The MRI approach to coverage was something I introduced to the Sov Waikato team back in 2002. One of the key issues I was hearing from adviser was the issue of angry clients cancelling IP in ACC claim situations, where the IP was being offset.

This was a time when mortgage payments were under 30% of income and quite a different situation with double incomes being the required exception rather than the norm.

What mixing MRI in did was remove the knee jerk reaction of cancelling IP which we don’t see because of the approach we have now. And many newer advisers will not have seen this behaviour as they have always done the MRI/IP thing.

Frankly, its worked well, too well maybe. But we were doing what we could with the tools we had and they were fairly blunt instruments.

Today the market is different. The challenges of a claim have also changed.

My key concern with IP is about maintaining household income to pay bills, and this is where there is an extra cost at claim time, compounded by a loss of 20-25% of income if the insurance and ACC works.

The typical middle income household today can’t sustain that for very long, especially in Auckland.

The other issue, and I put this in an article in more detail here on GR, is the increased cost of claims.

The delays in accessing treatment, sometimes months. My own recent claim would typically have an 8-9 month duration to get through all the specialists and tests privately that I did, and two year with public health.

I pushed it through at 6 weeks, because I could and I knew what to do. Even with coaching and advocating for clients that 8-9 months may have only been reduced to 5-6 months.

All of this time is cost of claim, on a client claim if they also had medical insurance too, I may have saved $40-50K at $10k per month, on mine closer to $90k. The medical costs were just on $30k, most people can’t sustain that, so on the public system they wait which costs the income protection insurer significantly more.

Not to mention that the cost of treatment has also increased, because of the technology.

What may have been amputated is not preserved, and this can take years.

I have one client where it’s been 5 years saving his leg, we stopped counting the medical claim cost at $265,000 for surgeries and that was 3 surgeries ago, and both ACC and public have picked up the follow up due to the cost and treatment injury aspects of what has gone on. Frankly, this is $500k of medical costs on top of 5 years of disability. It would have been cheaper for the insurers, and ACC, to chop it off at the first operation and have a prosthetic. The client would have had maybe 4 years of life living instead of 5 years fo repeating surgeries.

I agree the situation needs to be refined. The blunt instruments we have presently don’t allow nuances of designing the cover to suit the client needs.

We have premium remaining for exclusions which annoys clients, and we have benefits that are included that clients don’t want.

The core issue requiring income protection is to ensure the household operates on the lifestyle they have. We need to keep this in sight, and the following is part of the reason I have been so vocal about agreed value coverage.

The Aussie approach is an approach somewhat like kicking someone when they are down.

It could take several years of declining income to get to a claim. That doesn’t mean they can survive on that reduced income at claim, more they have reached breaking point and dropping income another 20-25% is just cruel and unusual.

And I understand why. When you are selling policies, you want to keep the options and ability for the sales person to screw it up to a minimum.

However, we need to stop pandering to the weakest link and start to design products that have a more refined flexibility to accomodate client wishes.

And if that results in poor behaviours which is the usual reason trotted out in product design, that’s what training and the new regime is for.

Providers are going to be watching everything Advisers do, so this should be both expected and no surprises either.