Life insurance solutions should be linked to impacts, not causation, and should provide benefits based on the claimant’s outcome of an illness rather than just on the condition meeting a particular definition, Gavin Teichner writes.
The current focus on life insurance claims has raised a number of important issues for the industry to address.
The current debate has been focused on definitions in trauma policies and whether claims have been properly assessed.
This is an important debate because it highlights the purpose of trauma insurance and the distinction between the clinical definitions of medical conditions used by doctors, and the insurance definition used in life insurance contracts.
Trauma polices typically cover a specified list of medical conditions that are likely to have a life-changing effect on a customer and their family. The policies are designed to cover the most common causes of critical illness, injuries, and the need for medical treatments.
The aim of the product is to take financial pressure off the customer and their family while they are recuperating or adjusting to a change in their way of life.
There have been calls to the life insurance industry to continuously update medical definitions to ensure that benefits are always payable on the diagnosis of a condition — i.e. use the current clinical definition.
This may be of benefit to new consumers taking out a new policy, but ignores the reality that insurers have no automatic right to impose changes to definitions on existing contracts without consumers consenting to the change.
Policies would need to allow changes to definitions to be made and consumers might be reluctant to enter into such contracts.
There is no doubt that policies should always be administered properly and claims assessed in line with the definitions of the policy.
Definitions should be clear and able to be understood by consumers. I am not sure, however, that the call to strengthen definitions across the industry will address the key customer issues that we face with these policies.
Will updating product definitions help?
To continue to be able to meet these objectives, trauma policies should be sustainable and affordable in the long-term, and they should also pay out in all circumstances where policyholders incur financial loss as a result of the medical condition leading to a claim.
Rapid advances in medical treatments and technology, together with greater consumer awareness of health matters and the early detection of many disorders, have resulted in significant increases in the level of early diagnosis of trauma conditions.
The capability to diagnose cancers, and cardiovascular and neurological conditions earlier is allowing early medical intervention and better and quicker recoveries.
This presents a challenge for the design of trauma products. What benefits should be paid to someone who is diagnosed with a minor skin cancer treated with day surgery and is back at work within a few days with minimum financial loss?
Should they receive what could be considered a large lump sum “windfall” benefit, or should their benefit be proportionate to the loss incurred?
Similarly, what benefits should be paid out to someone who is diagnosed with a chronic condition which can now be adequately controlled through medical intervention to such an extent that the person can get back to normal life?
Continued improvements in insurance definitions to ensure that all policies pay out full benefits in all cases of clinical diagnosis of conditions without any reference to severity or impact will lead to a significant increase in the cost of trauma insurance, risking making the product unaffordable for consumers. Trauma products are already expensive at older ages; we have a responsibility to ensure that these policies are available at the time when consumers need the benefits the most.
On the other hand, the design of trauma products to cover only a list of specified conditions is another issue to address.
Peace of mind is one of the most tangible benefits of insurance and we fail to provide this if consumers are confused about what conditions are covered.
Consumers need to be able to ensure that they can have financial security following an illness regardless of whether the condition is specified as covered. Current policies do not provide true peace of mind to the extent that all possible conditions are covered.
An example of a condition not covered by trauma insurance policies is Trigeminal Neuralgia. Symptoms usually appear in the over 50s. An incurable pain disorder of the cranial nerve controlling facial motor functions such as biting and chewing, Trigeminal Neuralgia is as common as Huntington’s disease and considered by medical experts to be one of the most painful conditions known to humankind.
Treat impact — not cause
It’s probably impossible to design a trauma insurance product that lists every critical illness known to man, but while such obviously traumatic medical conditions as Trigeminal Neuralgia aren’t specifically covered, trauma insurance policies remain a lottery for consumers.
To continue to meet their specified genuine purpose, trauma policies should have a benefit which is proportional to the loss suffered and should also cover financial losses from any condition regardless of whether the underlying cause is one of the listed conditions on a trauma policy.
Improvements in mortality rates, in conjunction with the earlier detection and treatment of cancer and cardiovascular conditions, are causing more people to deal with this cost of “survival”.
The real debate that should take place in the market is how we deliver solutions that provide benefits linked to the outcome of the condition, as opposed to providing compensation based solely on the occurrence of a specified condition meeting a particular definition.
Providing benefits which are proportionately linked to impacts as opposed to causation provides true peace of mind. This approach will also ensure that products remain affordable and sustainable, and support an objective claims management approach.
The insurance industry needs to be able to develop new customer centric propositions that meet unmet market needs. This is the only way for us to grow the market and bring new consumers into the market.
Too much product development takes place at the margin, looking to capture market share as opposed to growing the market.
Gavin Teichner is the general manager, individual life, at TAL.
