Vocational retraining - the improvements

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I talked about the situation of vocational retraining in my previous article. It appears to be broken. How do we fix it?

Thursday, July 21st 2022, 4:11PM

by Jon-Paul Hale

One of the crazy things that have come through from this area of claims management is the ridiculous requirement for the claimant to have a job offer before they approve and commence training.

This is a crazy requirement as the retraining for a professional occupation could take a year or three...

I appreciate that the insurer wants some certainty that the money will go to something productive. This should be a given.
* Is the chosen occupations appropriate? Occupational physicians can assess and advise.
* Does the claimant have the capacity to get through training and look for work? A psychiatrist/psychologist can assess this.
* Is the chosen occupation within the claimant's physical and psychological capability? Occupational therapists can assess.

Clearly, we want this benefit to be used for the betterment of our clients and increasing costs without corresponding improvements should be avoided.

The pendulum at this time is too far in the conservative. And the admission from one insurer has been they have never approved a retraining claim, nor has their reinsurer.

So this raises several conduct issues that need closer examination. Is this a benefit of the policy or not?

From where I sit, there is a clear opportunity for the insurers to improve their financial costs for claims, and they are missing out, costing all of us. Policyholders with premium and people not taking cover because of cost (80% of working New Zealanders don't have disability coverage)

One of the strong advantages of our disability policies is they are own occupation. This means that policyholders have the confidence to support their lifestyle with the premiums they pay and policies they hold. I talked more not his with my early 2020 article discussing the Partners Life changes for self-employed.

Yes, brickbats and bouquets across the board. This is a complex product set, and it has complex issues. No insurer has it right, and no insurer has it wrong either. But there are issues.

One of the clear advantages of vocational retraining is that insurers get relief from the total disability claim costs they would otherwise have. The downside is the chosen vocation is unlikely to pay at the same rate as the occupation at disability, which may be a limiting factor in the view of insurers.

And this is due to the partial claim topping up, to the point the claimant gets back to 75% of working hours, then the financial claim stops. This is a barrier to people going down the retraining path; it can result in reduced income and increased financial pressure.

Understanding this, we need to look at this through a slightly different lens. This is where the Asteron Life Workability cover comes back into sight. This cover supports the claimant's income in the new occupation in line with the pre-disability income.

In other words, they top up the resulting situation, and the claimant has the financial support while the insurer has some claim cost relief.

Even if we end up with a boom-bust type situation, where the claimant has contract or fluctuating income based on their varying capacity, the insurer has an advantage with costs, and the claimant has some purpose in their working life, including their social connection and community.

As I said, one of the strengths is the protection for the claimant of own occupation, is a change of direction is not an option or they just plain don't want to, this is protected.

However, we could improve our approach here, which would be helpful in both the current inforce contracts and be passed back to existing policyholders under passback rules.

And for those contracts without passback, this could be offered to the clients as part of SOP disability claims management. It's a prudent approach that looks at client-first outcomes.

I suggest removing the discretionary criteria for retraining in the policy wordings to be replaced with clinical and occupational assessment and a return to work plan.

So not a free pass here; it still needs to be justified.

If the retraining benefits are used, the claimant will pursue that occupation to the best of their ability.

The insurer will support this return to work program with a guarantee to provide a minimum level of financial support.
* 75% of pre-disability income for indemnity, loss of earnings, and taxable agreed value
* 62.5% of pre-disability or 100% of schedule for non-taxable benefits.

And remove the 75% of hours clause because the claimant has been confirmed as medically unable to return to their own occupation. They have met the conditions of an own occupation TPD claim.

And the resulting claim payments would be managed under the existing partial disability payment calculations.

This means that the insurer is still on the hook for the cover term they always were.

Yes, some increased claim management support will be offset by the reduction in costs with offsetting earned incomes.

The net cost here for the insurer is a saving in costs.
The changes to the policy improve the policy in areas where the policy is relatively weak in actual response.
It doesn't take away from the existing policy wording.

So it meets the criteria for this sort of change to be passed back to existing policyholders.

The risk to the insurer with the current approach is they have a client that is sitting on the couch collecting a claim payment for the rest of their life.
* My youngest long-term claimant at the moment is aged 35 on a to age 70 policy. This insurer is on the hook for the next 35 years!
* My highest benefit claimant is $21,000 per month and aged 52, on a to age 70 policy. That's $4,536,000 without inflation adjustment.

The current risk to the insurer is guaranteed long-term claim costs.

With these changes to the approach, the claim has a risk of people returning to the couch, but more likely only at times rather than full time.

Insurers talk about disability cost pressures and product sustainability while ignoring a part of their policy that could deliver significant improvements to claimants' lives and their financial bottom line.

Time we started to look at these things in a different light. The insurance industry has a significant part to play in our communities and society, and they could do better with reduced costs.

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