LIFE INSURANCE

Claims survey highlights value-based insurance advice importance

The latest trauma and mortality data give us a guide as to what’s most important in life and trauma advice.

BY RUSSELL HUTCHINSON AND ED FOSTER

Introduction

Gen Re kindly supplied their trauma claims survey, to give us an important update on the causes of trauma claims. This large multi-year study shows the major causes of claims for many lump sum benefits – including life, trauma and TPD.

Trauma claims data shows what conditions are driving trauma claims – and the results highlight the most critical areas of product design from a consumer perspective and how important it is to treat male and female trauma advice quite separately.

The results back up findings from a review of causes of early death conducted last month by our data scientist, Ed Foster, that show New Zealand could improve life expectancy substantially by focusing on a few key areas that cause hundreds more deaths than we should be experiencing. The overlap is considerable. Lastly, we consider the implications for financial advisers focused on trauma, health insurance, and wellbeing programmes – how valuable these are to clients and which products and options to choose from.

Trauma Claims Study – how it was done and the major findings

The New Zealand Individual Lump Sum Experience Investigation 2009-2014 was conducted by Gen Re. It accounted for more than 92% of all the participants in New Zealand’s Financial Services Council, which in turn accounts for greater than 90% of all the insurance written in New Zealand. For trauma it accounts for more than 6,000 claims emerging from more than 2.6 million policy years of experience. There are some significant gaps. From the survey a significant number of claims had no recorded cause. Insurers are good custodians of their shareholders’ money and the interests of other policy holders – we have no doubt that a clear and valid cause was established at the time before a claim payment was made. However, some policy and claims administration systems have limited facility for recording claims information. In those cases, the claims cause has not been recorded. The following analysis excludes those records.

Two charts are shown below. This illustrates the first, vital point. The experience of male and female lives is dramatically different. Although cancer is a major claims cause for both, respiratory and circulatory disorders (with a large contribution from heart attacks and strokes) make up a much larger proportion for men than for women. The variation in cancer experience is appreciable. This means that it is vital to consider the requirements of men and women separately when giving advice on trauma insurance. It also shows us where to focus our attention.

How important is cancer? For both men and women this is the feature with overarching importance. Effective early identification and treatment for cancer should be a primary concern for advisers offering any form of advice on living benefits insurance, whether that is trauma, disability income insurance, or medical insurance. For men cancer accounts for just over 40% of recorded claims causes, for women, that number is just over 70% (see the orange line in the charts below).

Now consider the other end of the spectrum. The item “other” accounts for just 2.93% of all male recorded causes of trauma claims, and about 2.4% for female lives. This category encompasses the vast majority of the long list of features present in most trauma contracts. Think of the typical (advised) trauma insurance contract. It is reassuring to see a long feature list, but to illustrate – perhaps thirty or forty features (rarely occurring conditions covered) are sharing in less than 3% of the experience. What practical impact does that have?

‘New Zealand could improve life expectancy substantially by focusing on a few key areas that cause hundreds more deaths than we should be experiencing’

Take female lives where cancer incidence and treatment are major concerns for New Zealand. The study of causes of death (see next section below) show that we desperately need to improve in this area. If we did, we would save between 180 and 400 deaths each year that is a mark of how important cancer coverage is for women. For some of them, trauma coverage and non-pharmac drugs coverage will be the difference between life and death – enbling access to dozens of treatments that are Medsafe licensed but not funded.

What about life insurance?

It seems like all complexity in life insurance advice boils down to simply buying the right amount. But does it? Analysis of the statistics for death during working life – early death – the kind that is most destructive because it robs families of a person in their prime – shows that the scope for improving life insurance advice remains every bit as significant as ever. Two areas stand out – the importance of complete coverage, aiming for no exclusions beyond the first 13 months, and the type of coverage recommended. To put those into context, we need to consider the facts.

While New Zealand has excellent overall life expectancy at birth there are some major causes of early death where we perform poorly compared to countries we like to consider our peers. I had our data scientist, Ed Foster, take a look at each of the leading causes of death and identify those areas where substantial life expectancy improvements could be made.

We focused our analysis on reducing deaths during working life. We define working life as being from age 20 to 64. There are 2,562,000 normally resident New Zealanders in that age range.

In 2019 there were 5,787 deaths in that age group. The top ten causes of death are:

• neoplasms (cancer)

• cardiovascular diseases

• self-harm and interpersonal violence

• transport injuries

• diabetes and kidney diseases

• chronic respiratory diseases

• digestive diseases

• neurological disorders

• other non-communicable diseases

• unintentional injuries.

We compared New Zealand’s performance to the OECD average and then, where we already exceeded the average, to a country that is similar to ourselves in income per capita that has the best performance (lowest working life death rate) for the particular cause of death.

There are substantial gains to be made in each area.

How many lives could be saved?

If we assume there are factors which are influenceable in bringing New Zealand’s mortality rates down to that of the average of the OECD, we can say that 254 deaths could be prevented annually with 87% coming from the female population. Mainly women that die, but need not, if we could adopt the measures and conditions common to the average for OECD nations.

Turning our attention to the gap between the best performing country for each of the 10 causes of death, we can see that 2,049 lives could be saved annually but now with the majority (53%) coming from the male population. We see this switch from female for the average to male for the best driven primarily by cardiovascular diseases. Of the countries that excel under specific causes of death; Israel, Ireland and the Republic of Korea have higher life expectancies than New Zealand handing them more weight to any recommendations made based on their modus operandi. On the flipside Mexico and Greece have lower life expectancy values than NZ making them less favourable as examples to follow, so we replaced these with Japan for neoplasms and the UK for self-harm.

‘Cancer is a salient example. New Zealand’s performance is slightly above the OECD average for men, but well below it for women’

Cancer is a salient example. New Zealand’s performance is slightly above the OECD average for men, but well below it for women. The female cancer deaths per year, which number 179, could be prevented if New Zealand were just able to bring our cancer experience up to the level of the average for the OECD. For your clients, improving treatment options through better coverage and claims payment could be vital. But for everyone, including vulnerable clients or Maori, even just lifting awareness of the need for regular check-ups would help a lot – the more we spread the word, the better.

With cardiovascular disease we already perform above the OECD average, so we must aim higher. Were we to improve to the best in the OECD we could reduce working life deaths by 595 lives per year – nearly half of our current annual loss of life to this condition. It is a tough goal, but clearly achievable – after all, someone else does it.

Self-harm and interpersonal violence is an area where there are significant reporting difficulties, but again clear opportunity for reductions. Our reference country in this case is the UK giving a potential gain of 128 lives lost annually.

Transport injuries is a category where we should not be surprised that improvements are available – although not by as much as you might imagine. Our performance is already above the average for the OECD, but if we were to improve to the level of Ireland, a not entirely dissimilar country, we could save 95 deaths per year.

With diabetes the potential gains to the best performer in the OECD would save 69 deaths per year.

Overall, the available gains amount to around 1,000 deaths per year – almost 20% of our annual number of lives lost between age 16 and 65 each year.

Consider the benefits to communities, families, children, companies and the country as a whole of saving these lives, each year.

Implications for specific types of insurance within a total risk package

Accident cover remains important – and may be a valuable add-on to family cover boosting cover levels to ensure effective cover for families against sudden loss of a loved one from one of the many transport and workplace accidents.

Mental health coverage and wellbeing services – such as AIA Vitality, and other policy features such as Partners Life’s grief counselling are probably more immediately valuable than perhaps are realised. Early intervention in an area which accounts for a substantial portion of early deaths is vital. We can probably save a lot of lives doing this, so although paying claims is our business, preventing them is better for everyone. Insurers that have policy commitments to reduce financial stress – such as cover suspension and reinstatement features used by thousands during 2020 also support mental health and enable clients to retain cover. Some insurers are not good at proactively making customers aware of these other ancillary benefits. Advisers have a critical role to play in identifying when they could be helpful and alerting clients.

Living benefits – such as income protection, trauma insurance, and medical insurance are really important. Specifically, the versions of those that provide access to specialists and tests to enable early detection, and non-Pharmac coverage to enable access to a greater range of treatments are valuable given the skew of claims towards cancers. This has probably become more valuable over the last five years as new treatments have dramatically lifted treatment prospects for many cancers.

Conclusions: Implications for insurance advice provision as a whole

An illustration of how important small variations in the cancer definition can be is to consider how the wording could be 10% worse. A 10% worse cancer definition would, for example exclude melanomas between 1mm and 1.5mm in depth, contain other limits on melanoma, and limit the types of leukaemia covered. Those small definition differences would be worth more than around 15 of the lowest scoring features – yet the temptation for the client to look at the long list, rather than listen to the adviser talking about the benefits of superior cancer, heart attack and stroke definitions is clear. Gen Re’s claims survey is an excellent antidote to that idea. But it needs someone – you, I hope – to tell the story. Most clients are not capable, without help, of working out what is more important about the product.

The Australian Securities and Investments Commission specifically identified this kind of weakness in the advice generally available to consumers in the review of retail life insurance advice. Amongst other concerns they called out “Lack of strategic life insurance advice: where the adviser failed to add any meaningful value to their clients by: (a) helping them set an appropriate sum insured, balancing the competing priorities of underinsurance versus affordability; (b) testing the value of optional extras against the client’s ability to sustain the insurance over time by prioritising the essential and the non-essential …”

‘Most clients are not capable, without help, of working out what is more important about the product’

I feel that this probably goes to the heart of what it is to be an adviser. It is vital that in your recommendations the relative importance of these differences is not lost and the context of living in New Zealand is understood – our conditions and our hazards are taken into account. It is one of the fundamental reasons for seeing an adviser. If it’s just a question of regurgitating feature lists and policy wordings, then advice could easily be dispensed by a robot. A

Grateful thanks to Gen Re for permission to use the statistics. Gen Re | Life/Health Region Australia/New Zealand. https://www.genre.com/knowledge/blog/ lump-sum-benefits-the-experience-in-newzealand-en.html

For a full copy of the paper on death during working life including references to data sources, please contact Ed.Foster@chatswood.co.nz