What’s all this about a public income insurance scheme?
Russell Hutchinson looks at the government's proposed income insurance scheme and what it means for advisers.
Tuesday, February 8th 2022, 9:18AM 
2 Comments
by Russell Hutchinson
The logic for an income insurance scheme was brought into policy debate again (this isn’t the first time) by the pandemic.
As several tens of thousands of workers were let go from travel and hospitality sectors a temporary safety net was provided at a level above that for normal unemployment benefits.
That brought both praise and criticism from both the left and the right. Perhaps the best argument in favor of such schemes is simply that events such as pandemics are hard to insure – social goods that are hard to provide for in another way are usually the proper realm of government. Having said that, these proposals include income cover not just for mass redundancy, but the more specific types, and, for loss of income due to sickness.
Strong arguments exist that some contingencies should be covered by savings.
Savings are marvelously flexible – if you don’t use them for one thing, you can use them for another.
Generous safety nets can create hazards which depress private savings further causing other problems.
Another is that by squeezing out the private sector, you can reduce the size of the productive economy.
Competition between insurers often yields efficiency and innovation.
Arguments back will cover the ideas that single, state-run insurers, such as the entity we usually call ACC, are very efficient. There are schemes overseas with which comparison can be made.
One particular concern for income insurers is that the government proposes to take the best bit of the income protection risk and leave the worst bit: long term income claims.
Do take the opportunity to read the proposals and give feedback, if a whole submission is daunting, then co-operating with your industry body is a great way to participate. If nothing else, some clients may bring up the potential scheme and you should know about it.
https://www.mbie.govt.nz/about/news/proposals-released-for-a-new-zealand-income-insurance-scheme/
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Russell's point on short term claims is spot on, as usual, 7-8 months of support as proposed falls well short of the industry average claims of 14-18 months.
Even the "normal" short claims are going to find they don't have enough support just as they start back to work. And then what about those that bounce around a lot.
Particularly mental health claims where the stressors come back from time to time. I have one client going through his third such claim in about 10 years because things are not as straightforward and as simple as the modellers like.
There is going to remain a need for good disability coverage with this, the challenge we are going to have is justifying why in the same way we have had to with ACC and accident claims, now it's harder.
In some ways the job loss piece is excellent, the medical disability component is setting people up for significant failure and hardship. It would be better to have this component at 90 days/13 weeks, which slots nicely into the disability insurance sweet spot for premiums.
6 months wait is too long if there isn't coverage provided, and not enough of a saving to justify pushing it out either.
We also need to see more detail on what is proposed, as anyone who has worked disability claims knows, there are significant fishhooks to consider.