What does the future of Trauma insurance look like?

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Change is the only constant – and the life insurance industry is no exception.

“Change is the only constant”, or so the saying goes, and the life insurance industry is no exception. Just as the typical client of today is changing, becoming more “diverse, demanding and connected”[1], so does the approach that we take to the range and flexibility of cover we provide.

The world is already moving towards this new insurance future. Major life insurance markets such as South Africa, New Zealand and the USA have all embraced a new generation life insurance product – severity-based cover – recognising the inherent value and increased certainty that a severity-based offering provides to both customers and advisers alike.

One of the biggest drawcards of the severity-based approach is that it offers a more flexible style of cover. There are more mechanisms built in to ensure clients can claim on a broader range of conditions and claim multiple times if the severity of the illness progresses, or they suffer another medical condition.

The policy can also pay at lower thresholds because, unlike traditional “all or nothing” policies, the amount the client receives at claim is aligned to the severity of their ailment. Think of it like playing darts. Traditional claims are paid if your client hits the bullseye, which means they get paid 100% every time, but if they fall outside, they miss out. With severity-based cover, early stage conditions are still paid a portion of the total cover, with the balance of cover preserved for future claims. This means even when clients don’t hit the bullseye, as long as they land on the board, they will still receive something to meet the finanical impact of illness.

And while the amount of cover reduces after each claim, the line of credit structure ensures that a portion still remains available for future claims. This means clients get more payments from their policy if a health event they already claimed for worsens, or if they experience a new condition.

This approach is becoming increasingly valuable to clients as Australians are living longer and living better. With rapid advancements in medical technology, conditions such as cancer and heart illness are not the death sentence they were 20 years ago. Diagnoses are happening sooner and sooner, and rather than claiming a one-off lump sum for a severe condition, clients are being medically managed through their illnesses. Many now approach trauma as a ‘journey’ and are more likely to require smaller sums throughout their life to help manage their illness and recovery.

In this environment, paying a lump sum for less severe trauma or disablement cases only contributes to greater unaffordability of cover and unsustainability within the industry. And while the needs of customers have changed dramatically over the past 20 years, we need to remember that the certainty and support they require at such a difficult time in their lives has not. The onus is now on life insurers to evolve to ensure we can continue to offer a sustainable policy that is there for them over the course of their life, no matter what that life looks like.

 

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[1] De Wit, R, Nielsen Consumer 360: the consumer is changing and connected, i-Scoop, 2016.

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