Adviser-sold disability claim pay-outs double

23 June 2020

Life insurance firms have paid out double the number of disability claims for policies sold through financial advisers over the past five years, according to new analysis conducted by major consultancy KPMG working with the Financial Services Council (FSC).

The new analysis, released this week, shows that over the latest period the life industry paid out benefits of $4.9 billion of disability income claims for policies through financial advisers - double the average annual payment level of the preceding five-year period.

The data analysis showed that the most common cause for people who made a disability income claim were accidents (38%), musculoskeletal (18%), mental disorders (11%) and cancer (10%).

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Importantly, it found that much of the increased pay-out levels was due to people remaining on claim for longer, rather than a significant increase in numbers of new claims.

The new disability income claims analysis covered the five-year period from 2014 to 2018 and involved an examination of 71,000 new and closed clams for insurance policies purchased through financial advisers from 10 insurers.

Commenting on the findings, KPMG actuarial partner, Briallen Cummings said the study had shown a significant rise in pay-outs in all categories of claims over the past five years but the increase in mental health claims was especially notable.

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As mental health claims have exploded, this has had a disproportionate claims impact on policies sold through advisers. Why? Because non advised policies usually have a mental health exclusion.

It's time to offer advised clients with no mental health history, the option of mental health exclusions with reduced premiums. Alternatively, exclude mental health cover from all disability policies whether advised or not. At the moment advised insurance clients are carrying a disproportionate cost burden for the so called "mental health crisis".

Interesting in itself but how does it compare to non advised policies? It could just mean that the world is getting sicker, insurers have relaxed claim criteria ...

Do not agree that advisers should be able to DIAL OUT mental health cover for a premium saving. Its been tried before, and was a disaster. Firstly one percent of advisers dialed MH out without telling the client. The same folks who sold Age 65 benefit period without CPI of benefits, just to make the price look good. Most of those have left the industry-thank the lord, but the opportunity will exist for adviser abuse. The major issue was the extreme severity of the MH exclusion wording-it was so wide ranging it impacted on every claim. And finally what adviser can predict that a the client on a long term claim wont develop depression as many do. Back then the insurers were pressuring treating doctors in monthly reports to certify our claimant remained un-depressed. If a doctor reported a claimant had also become depressed, the claim stopped. SORRY, NOT A GOOD IDEA !

maybe up the threshhold for mental health claims. Ie not just reporting to a doctor that you feel depresssed. That is very exploitable. Must be medication perhaps psychiatrist involved? it's such a hard one to solve.

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