Download Disability Income Product Innovation in Australia

Disability Income Product
Innovation in Australia
James Louw
Chief Actuary, Gen Re, Australia
Session Number: WBR5
Joint IACA, IAAHS and PBSS Colloquium in Hong
Kong
What we’ll cover
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Individual DI products in Australia
A little about Australia & our local DI Market
Product Innovations
The Drivers of Change
Gen Re: 2012
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Individual Life market growth
6000
API in $1000s
5000
4000
Lump Sum
Disability Income
3000
2000
1000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
Gen Re: 2012
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Typical Disability Benefit in 1969
• Total Disability
Gen Re: 2012
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Typical Disability Benefit in 1989
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Total Disability
Partial Recovery
Waiver of Premium
Recurring Claim
Increasing Claim
Inflation Increase
Specific Injury
Rehabilition
Total Permanent Disability
Gen Re: 2012
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Typical Disability Benefit in 2012
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Total Disability
Partial Recovery
Waiver of Premium
Recurring Claim
Increasing Claim
Inflation Increase
Specific Injury
Rehabilition
TPD
Death
Cosmetic/Elective Surgery
Special Care
Family Support
Worldwide Cover
Reward Cover
Occupational HIV
Day 1 or 4 Accident
Booster Benefit
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Gen Re: 2012
Bed Confinement
Crisis Recovery
Housekeeper
Overseas Assist
Accommodation
Involuntary Unemployment
Return to Work
Premium & Cover Suspension Pause
Cover Continuation
Guaranteed Insurability
Reduce Waiting Period
Extended WOP
Child Care Assistance
Transport Cover
Retraining Benefit
Cover Suspension
Meal Allowance
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The Australian Workforce
• Australian Population:
– Aprox. 23 million
• Australian Workforce
– Aprox.11 million – 55% Male
• Average Annual Earnings (before Income Tax)
– Aprox. A$60,000pa (US$ = Aus$)
– Males get paid a 15% more than Females on average
• Unemployment Rate
– 5.3% 1/2012 (was 3.6% in 1/2008)
• Inflation Rate – 1.6% Q1 2012
Gen Re: 2012
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The Australian Individual DI Market
• No. of Major Disability Risk Companies - 12
• Size of Individual Disability Market 2012:
– New Sales, A$463m API with 18% growth last year
– In force, A$1892m API with 11% growth last year
• IFA (Independent Financial Adviser) market
– Almost no ‘agents’ linked to specific Insurers
• Most Disability sales are made in conjunction
with Life, CI & TPD Sales
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Mix Of Business
• By Benefit Period
– About 70% ‘To age 65’, 12% each for 2yrs & 5 yrs
• By Waiting Period
– About 70% 30 day, 5% 14 day, 15% 90 days
• By Occupational Class
– About 40% ‘Professional’, 20% Clerical, 20%
Skilled Manual, 10% Unskilled/Heavy Manual
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Distribution by sum assured
0%
5%
10%
15%
20%
25%
30%
35%
$10001999
$20002999
$30003999
$40004999
$50005999
$60009999
$10000+
Gen Re: 2012
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Claim Incidence by Sex
Males (Number and % Total n=5816)
Musculo
Neoplasm
Mental
Circulatory
Infection
Digestive
For males,
musculoskeletal and
accident claims are
most common
Nervous
Other
Females (Number and % Total n=943)
Neoplasm Genitourinary Circulatory
Accidents
Mental disorders are
most common
sickness claim in
females
Infection
Digestive
Mental
Nervous
Other
Musculo
Gen Re: 2012
Accidents
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Claim Incidence by Occupation
White-collar Males
Neoplasm
In white-collar males,
mental claims are as
common as
musculoskeletal claims
Circulatory
Infection
Digestive
Mental
Musculo
Nervous
Other
Blue-collar Males
Accidents
Musculo
In blue-collar males,
musculoskeletal and
accident claims are
most common
Accidents
Gen Re: 2012
Mental
Neoplasm
Circulatory
Infection
Digestive
Nervous
Other
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Length of claim
700
Mental
600
Circulatory
500
400
Neoplasm
300
Musculo
200
100
Accident
0
Male Whitecollar
Male Bluecollar
Female
White-collar
Gen Re: 2012
All Sickness
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Today’s Contracts
• Guaranteed Renewable Coverage
• Product Categories - Premium, Standard, Basic &
Special Risk
• 75% of Income
– Plus 10% Superannuation Contributions
– Plus top-up to $60,000 per month for 2 year benefit period
– At lower replacement ratios (50% and 20%)
• Benefit Periods: 1-5yrs, To age 50, 55, 60, 65 & 70
• Waiting Periods: 14, 30, 60, 90, 180, 365, 730 days
• Additional Benefits – 35 or more
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Core Product Features
• Agreed Value (AV)
– Benefit applied for plus indexation will be honoured at
time of claim (AV)
• Indemnity Value (IV)
– Based on the insured’s net income 12 months prior to
disablement, or
– Best 12 month period in the 3 years prior to
disablement
• Tax Implications
– Benefits are taxable and premiums are tax deductible
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Core Product Features
• Benefit Offsets
– Paid sick leave entitlements
– Compulsory statutory insurance schemes
– Other disability, group, sickness or accident insurance
cover, including mortgage cover
• Benefit Exclusions
– War or an act or war (this is being removed on many
contracts)
– Intentional self inflicted act
– Voluntary participation in a criminal act
– Pregnancy (except if the disablement continues 3
months beyond confinement)
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Core Product Features
• Total Disability (Severely Disabled) occurs if you
are unable to:
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Work in your own occupation, has become
Work more than 10 hours, OR
Perform 1 important duty, OR
Generate at least 80% of pre-disability income
• Partial Recovery/Disability
– ‘Deemed’ capability clause
Gen Re: 2012
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Benefits Assisting RTW
• Partial/Recovery Disability
– Unlimited timeframe
• Rehabilitation Expense Reimbursement
– Up to 6 times the monthly benefit
• Overseas Assist Benefit
– Reasonable repatriation expenses up to $10,000
• Retraining Benefit
– Pays up to 12x MB for retraining expenses
• Return to Work Benefit
– If paid the Retraining Benefit, 1x MB after 3
months of full-time work
– And 2x MB after 6 months of full-time work
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Benefits Adding Additional Support
• Family Support Benefit
– If the insured is confined to bed for at least 30 consecutive
days
– Immediate family member ceases employment or registered
nurse is employed to care for patient
– Maximum of 3 monthly payments ($3,000 per month)
• Housekeeper Benefit
– If the insured is confined to bed for at least 30 consecutive
days
– Maximum of 6 months ($3,000 per month)
• Family Accommodation Benefit
– Pay of costs up to $100/day for up to 90 days if 100 kms away
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Benefits Adding Additional Support
• Special Care Benefit
– If confined to bed at home & a totally dependent on a nurse
or PCA
– Pay additional lesser of $5000/m or monthly benefit for up to
6 months
• Meal Allowance Benefit
– If confined to bed, an additional $500/m for a meal delivery
service
• Child Care Assistance Benefit
– Reimburses lesser of 5% of MB or $400 for child care costs
• Commuter Benefit
– During the WP, if you try to RTW, reimburses lesser of 1/3 of
MB or $500
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Benefits Increasing Risk
• Inflation Increase Benefit (prior to claim)
– Generally the greater of 3% or the indexation factor
• Increasing Claim Option
– Generally the lower of 10% and indexation factor
• Booster Option
– If totally or partially disabled the insurer will pay an additional
1/3rd of the monthly benefit
• Day 1 or 4 Accident Benefit
– Payments commence immediately or after 3 days, for 14 days
or the waiting period has expired
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Benefits Increasing Risk
• Cosmetic/Elective Surgery Benefit
– Total Disability paid if cover in force for at least 6 months
• Guaranteed Insurability
– Prior to age 55, up to 20% increase every 3 yrs, in addition to
CPI
– Not while on claim
– Not exceeding 75% of monthly income
• Superannuation Guarantee
– Additional amount over the 75% Replacement Ratio
• Cover Continuation
– Reach age 65, you can extend your cover age 75
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Lump Sum Benefits
• Specific Injury Benefit
– Not required to be totally or partially disabled
– Guaranteed payment of monthly benefit for specific events;
loss of use of both hands or feet or sight in both eyes
– Fractures to; pelvis, leg, collarbone, etc
• Death Benefit
– Up to 3 months benefit
• Crisis/Trauma Recovery Benefit
– Pays for Critical Illness type events – MI, Ca, Stroke, CABG, etc
– Lump sum payment up to 6 times monthly benefit
– Do not need to be disabled from performing employment
tasks
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Lump Sum Benefits
• Occupationally Acquired HIV, Hep. B & Hep. C
– Lump Sum payment, only paid once
– Up to A$500,000
• Reward Cover
– If you keep your policy for 3yrs, bonus of up to $100,000 ADB
free
• No Claim Bonus
– Reach the Expiry Age without making a claim, refund of up to
20% premiums paid
• Total & Permanent Disability
– Lump sum payable if TD & permanently TD
– Usually after the expiry of a 2yr, 3yr or 5 yr BP
Gen Re: 2012
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Other Additional Product Innovations
• Recurring Disability Claim
– Up to 12 months
• Premium Waiver Benefit
– Waive premium whilst on claim
• Cover Suspension Benefit
– Cover will be suspended up to 12 months
– Reinstated without underwriting
• Bed Confinement/Nursing Care Benefit
– Pay during Waiting Period up to 90 days
Gen Re: 2012
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Other Additional Product Innovations
• Worldwide Cover
– 24 hour a day in any country
– No terrorism exclusion clause
• Involuntary Unemployment
– Up to 3 months benefit to payment minimum loan
repayments
• Reduce Waiting Period
– If you have Superannuation DI (2yr BP) & you buy 730day WP
DI
– And your change employers, you can automatically reduce
your WP
• Transport Benefit
– Reimburses the cost of emergency transport (not ambulance)
within Australia Gen Re: 2012
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Benefits Ceased over 40yrs
• Full Guaranteed Coverage
• Lifetime Benefit Periods
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Other distribution
• Superannuation
– Massive driver of “sales”
• Banks
– Not much focus on DI
• Online
– Lump sum benefits seen as easier to underwrite
• Direct TV
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High level of competition
Sold as “bill payer” and not as income replacement
Guaranteed issue
Low sum assured and short benefit periods
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Drivers of Product Change in Australia
• Highly competitive market
– Mainly focused on attracting distribution
• Regulation
– FOFA
• Risk Product Research Houses
• Profitability
• Some benefit simplification is occurring
– Many paid options sold very low volumes
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Where is the DI Market going
• Disability Product Innovation over 40yrs
– Has it been good for the consumer?
– Awareness of benefits
– Understanding of what they have
• Australia’s Disability Marketplace
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Took on additional risk
Profitability poor, but is it cyclical
Competition with Superannuation
Claims management resources
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Disclaimer
This presentation is protected by copyright. All the information contained in it has been very carefully researched and compiled to
the best of our knowledge. Nevertheless, no responsibility is accepted for its accuracy, completeness or currency. In
particular, this information does not constitute legal advice and cannot serve as a substitute for such advice. It may not be
duplicated or forwarded without the prior consent of the Gen Re.
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