The Case for Simple Life

I talked about the case for Golden Life, which is one for life coverage and funeral planning. This is about the other benefits, risks, and needs.

Thursday, August 1st 2024, 6:00AM

by Jon-Paul Hale

Sovereign came out with a product around 2015 that has since been withdrawn for reasons similar to funeral plans, and the coverage wasn't up to scratch for the mass market.

However, there is a use case that makes sense and is similar to the Golden Life approach.

One adviser challenge with the simple life products is the lack of medical declaration and assessment at claims time. We advisers generally avoid this approach to cover as it provides no certainty of coverage for clients.

However, this sort of solution is needed in situations where coverage can't be placed traditionally through underwritten coverage.

The Sovereign Simple Life product took a simple approach: assess the claim at claim time based on the situation of the claim. This approach aligns with common client comments with non-disclosure declines, such as 'What does my hip have to do with my cancer claim?'

I agree; What does the client's hip condition have to do with their cancer claim?

Nothing, mostly, unless you are talking about the cancer that originated in that hip for some reason.

This is the point cover that responds to the claim needed based on the circumstances of the claim. Understanding that if the underlying condition at underwriting wasn't coverable (excluded), there would not be a claim payable.

Partners Life had a similar approach with their retail product with a non-underwritten overlay where the claim would be payable if the condition became coverable between the application and claim dates.

I had a use case for the Simple Life approach that didn't fit the Partners Life cover recently. The client had a history of MDMA and cocaine use; an automatic 10-year minimum deferral after ceasing use for insurers to look at this client.

The reality for this client is that this is historical use; life is quite different and put together now, and it has been for several years. Drug use is well behind them.

The Simple Life product approach would be quite appropriate here.

They can't get traditional life insurance products, and they need coverage.

Coverage under Simple Life would assess the claim based on the situation at the time, and drug use would only be an issue if it were present and related to the claim being assessed.

The client could have coverage now for the period of time it takes for them to be assessed without the past drug use being a problem.

Then, we tackle the underwriting for more traditional coverage. Yes, there will be the future risk of conditions causing terms to be considered, but that is about the current situation.

The problem with these products in how they have been distributed in the past is they have become the easy default approach.

This results in the wrong clients having the policy as the underwritten cover that is demonstrably cheaper and better for the client under a medically disclosed and underwritten policy.

This comes about from two directions: clients who have access to these products directly and advisers who advise them for expediency and less work required.

This brings me to a similar approach I outlined for Golden Life being brought back for the adviser market.

These covers would only be available to accredited and authorised advisers who can demonstrate the need for the cover.

The medical disclosures relating to the cover's inability to be placed in a traditional underwritten product are provided.

The point is the medical history will come out at claim time, so it being disclosed doesn't prejudice the approach.
The issues of systemic medical conditions that preclude any claim under a simple life contract would also be identified and be able to be communicated to clients.

The challenge for the insurer is they wouldn't be able to automate this product range like they have, as every case needs some level of assessment before proceeding.

Management of advisers gaming the digital process.
Yes, truly the policy prevention dept we all joke about.
The insurer risk with this product with inappropriate use won't be discovered until down the track, with a claim or conduct complaint, so it needs to be managed at application time.

This product approach has a specific construction to it. You're accessing a cover that is limited in response at a higher premium.

You have exclusions without premium loadings because the underlying coverage is priced higher for the added risk the insurer has.
The insurer accepts that they have a selected against position, and both need to price for it and accept this in the way claims are managed and assessed for the benefit of the client.

To coin a mortgage lending term, this area of sub-prime risk is a specialty situation that requires more robust operations and controls than traditional term life products.

We all know we have a significant cohort of people not catered to with life insurance products, and a good portion of them cannot access traditional products for various reasons.

As an industry we need to identify ways to provide safe and effective products for this sector of society that work and deliver on what is promised while keeping at bay the predatory nature of humans with vulnerable people.

Because that's the issue from the past: predatory behaviour with vulnerable people. We can do better, and we're in a better place to do so with the new advice rules we have.

Past poor performance is not an indication of future performance. What hasn't worked in the past doesn't preclude revisiting ideas and solutions in a changed environment.

Clearly, we need to avoid the issues of the past; at the same time, we need to ensure we're not drowning the baby after we throw it out with the bath water.

Tags: Jon-Paul Hale