If you dive into the weeds, then expect to drown in the swamp, eventually

Back in August 2023, Chatterbox responded with some pertinent thoughts, and I'm expanding on it.

Friday, March 1st 2024, 10:13AM

by Jon-Paul Hale

Chatterbox's comment about me being in the weeds is quite apt; "If you dive into the weeds, then expect to drown in the ocean eventually."

Maybe so, with the antics of the last couple of months.

A point that Chatterbox raised is the creep of policy wordings,

Suggesting that the changes with policies over time morph and aren't reflective of the cover or contract they started with. To some extent, this is true.

As I have said before, if you look at the changes in trauma definitions over the last 20-25 years, which makes me feel old, you will see a contraction of definitions and then an expansion of them.

The clear problem with this is a client buying a policy in, say, 2000 and then increasing it in 2005 and then some more in, say, 2015 potentially has three quite different claim criteria (ignoring passback for a moment) on their three different benefits, even with the same insurer.

As I touched on in my comments on insurers' passback approaches, one of the challenges here is the wording of the day at the time of claim, which is the wording that is used for applying any improvements to the original policy.

Which is problematic with the ebb and flow of policy definitions. While we remain in a cycle of more claim-permissive definitions, today's wording is mostly better.

For example, the 2000 policy will mostly be a better definition than the 2005 policy; simultaneously, the 2015 policy is likely better than the previous two.

When we look at passbacks, it changes; the 2005 policy gets upgraded to today's wording, as does the 2015 policy. The 2000 policy gets what it has.

Which is the rub.

Now, let's talk about a contracting market, as we're starting to hear more noise than usual on increasing pressure for claims and premiums; this is likely to adjust the line the insurer uses: "Is this serious enough?" when determining policy criteria. Quiet creep with tougher definitions that reduce claims.

For nearly 25 years, I've been hearing claims and premium pressures from insurers; this is BAU, the normal operation of an insurer and the insurance market with the application of modern medical technology development. This means that definitions for claims change, and some things that were issues in the past are significantly more treatable with less personal impact.

An example of this is the drug-eluting stent thing of the 00s, which means that what was bypass surgery is more an angioplasty procedure most of the time. I haven't seen or heard of an open heart bypass in years.

The effect of this on our policy examples in 5 to 10 years is one where the 2005 and 2015 policy examples may find themselves using the issued policy wording despite the passback improvements that have been applied over the intervening years because the wording of the day is significantly contracted from where the 2023/2024 policy wording may have peaked.

This is a possible reality of how all but the Partners Life policy passbacks are managed.

Before you start the Kool-Aid comments, Partners Life has a significant management issue in ensuring that the best of the current around 20 different policy versions is applied to a claim.

Bearing in mind right now, that applies on the basis of the issued policy wording, last year's vs this year's or any of the prior years from the date of issue for the time Partners's Life has been around.

So when Chatterbox raises the point of policy creep, this is going on, and it can impact the outcomes expected for clients over time.

Right now today, it's' a minor concern as the market has been in expansion mode. With the current commentary from insurers, this is one to watch and consider, particularly with trauma premiums and operating costs.

But that's not all Chatterbox had to say about this; the other aspect was lost policy docs and the creep of replacement wordings.

This is a point of trust that is concerning if it is happening. In my experience working for Sovereign and as an adviser, I haven't seen any lost policy docs replaced with newer versions of policy wordings.

That's not to say it's not happened or never happens. If it is happening, then there is some concern about this in terms of technical policy administration that breaks several rules and conventions we have.

I'm sure there have been examples where the insurer has added improved wording under a passback approach. If this activity is going on or has gone on, then we need examples to bring the light on this and get it addressed.

There is the point here that the swap to a more improved wording (where this is genuinely the case) under passback potentially avoids the claim issue above of wording of the day. Where the policy is "upgraded" to the best wording so far, but that has its issues too; refer to my prior comments above.

Where I have seen direct evidence of this sort of policy "swap" is in the group insurance space. This may be where the examples driving Chatterbox's comment may have come from.

Many group policy contracts have a wording for continuation onto retail products when the member leaves the group. This typically states that the exiting member receives the policy wording of the day or the latest retail wording of that product.

An example of this is the old Sovereign MajorCare contracts; before 2003, exiting policyholders basically received the policy they had in the group.

After 2003, exiting policyholders received the post-2003 wording, which added the 30-day changes clause, reasonable and customary charges, and removed unfunded medicines cover.

This has moved and changed over the years, with most now continuing with the policy they had in place, if they hadn't moved to the newer wording due to premium costs.

The bit that we advisers need to be mindful of and more careful about is policy replacement.

Many of the client comments, "My policy changed and took away cover, " we hear aren't about insurers changing things; the agent/adviser activity has created this.

Yes, it is a combination of us in adviser land and the behaviour of direct, bank, and restricted product providers.

This isn't purely those labelled with the churn sticker; it is all of us when we don't have a well-informed client just doing what we have advised.

Clients allow these things for two reasons. The big one is that they trust us; second, they are not as informed as they think.

This brings me to the adviser bit: make sure your advice is well documented. Also, make sure your advice is easily readable and understandable by your clients.

The FSLAA bar for our advice is that the client understands our advice, and we are now liable for that by law.

Tags: Jon-Paul Hale