Macquarie Life's Active response

In response to an article by Col Fullagar, Macquarie Life's Justin Delaney explains the reasoning behind the firm's new Active life insurance product.

As a product provider that prides itself on innovation, Macquarie Life welcomes debate and discussion within the Australian life insurance industry, like that provided by Col Fullagar in Money Management (‘An Active product discussion’, P20-21).

This debate and discussion ensures the industry remains relevant and continues to evolve.

The launch of Macquarie Life Active introduces a new category of life insurance into the Australian marketplace.

It pushes the conventional product boundaries set by traditional life insurance offerings, so therefore needs to be assessed, reviewed and considered in a new way.

We designed it to introduce a level of flexibility and ease of understanding that has not been previously available from a life insurance offering.

However, before this gets placed into the marketing gimmick basket, let me explain these claims.

Australians have many issues with the concept of life insurance, which has led to the much-debated concerns about underinsurance.

These issues include policy exceptions and exclusions, claims not being paid, premiums being too high, complicated policies and lump sum payments sometimes being too good to be true.

Consumers told us they wanted a policy that made sense, with benefits that matched their needs, offering comprehensive cover and built in features rather than a myriad of options.

Therefore, for any new category of life insurance to be introduced to the Australian marketplace, addressing these common issues seemed to us to be a logical approach.

More than trauma insurance

Firstly and importantly, Macquarie Life Active is not traditional life, trauma and total and permanent disability (TPD) cover and therefore cannot be directly compared with these policies.

If it were, then it wouldn’t be anything new. In almost 50 adviser workshops, the national road show and numerous individual meetings we conducted about the product, we presented its benefits and its limitations, we did not position it as a replacement of traditional policies, but an alternative to them.

The new product is based on what we call health events.

These health events, which have been developed using medical guides, are used to determine the level of cover provided to a client and guide the claims process.

Health events

While the Australian life insurance industry has come a long way during recent years, other markets offer alternatives to the traditional product concepts of our market.

Those include the UK and South Africa. Within both of these markets this new category of life insurance is well established, based around the same general principle of taking a more medically based approach to guide severity, cover and claims.

For South Africa, the success of this approach means these products now make up the majority of the life insurance market.

This gives the client broader cover for a wider range of health issues and, at the time of a claim, avoids the common mismatch between the condition or severity according to the doctor treating the client and what is stated in the insurance policy documentation.

By developing health event definitions with medical professionals specialising in each body system, this creates not only a longer list of covered medical conditions which can benefit from cover, but also identifies severity levels.

This ensures greater alignment between what the medical professional tells the client is wrong and what they expect from their claim.

Yes the list of definitions is much longer and while the client might have a few questions to ask, this provides the client with a greater number of conditions under which they are able to claim, plus they do not have to make an unnecessary windfall claim, which adds to the cost of any trauma product.

It is also interesting to note that in South Africa claims were seen across all covered body systems, which indicates that the wide range of cover is not simply a marketing gimmick.

Making a claim and multiple claims

As noted above, different benefit categories have been developed to fit the seriousness of the client’s expected financial need.

For example, placing melanoma on a sliding scale of A to E, with E being very early stage detection and A being incurable.

As those in the industry have quite rightly pointed out, by making a stage C claim through Macquarie Life Active, which may provide 40 per cent of the sum insured, this reduces the total sum insured available at death to 60 per cent.

This is something that should be explained and appropriately disclosed in documentation (which has been done).

However, if that 40 per cent is needed by the client to provide lost income or pay expenses, then surely that is the right outcome.

In addition, it follows naturally that the client’s actual financial needs are to some degree offset by the amount they have just received. This, I believe, can be a much more efficient structure for the client.

Questions may also be raised about the need for additional cover to help overcome this situation, leading to potential inefficiency and cost of over-insurance.

The first point to make here is that Macquarie Life Active allows for a portion of the sum insured under the policy to be protected if required for estate planning purposes.

The second point is that this way of structuring a product is designed to help make it more affordable for the client.

Determining appropriate amounts of cover with a traditional policy can be challenging and can result in the premium becoming high enough to deter the client from taking out the full-recommended amount. Surely that is a worse outcome.

Active versus TPD

Let’s look at occupational-based TPD payments for a moment and why you might consider, as a product manufacturer, not using an occupation based payment criteria.

Commentary suggests that it is only a perception that occupation based TPD payments are subjective and difficult to assess, but I’d argue that it could be more of a reality than a perception.

TPD claim rates remain low, the trigger point for claims is strict and, yes, it is subjective.

As such, I would question why an adviser should have to apply their own disciplined claims process, because this can create risks for the client.

Very few TPD claims happen overnight, it often requires deterioration of a condition.

So, why have cover that only pays at the end against subjective assessment criteria, when you can get paid along the way against more objective criteria?

Many TPD claims are declined because the client’s condition is not severe enough to meet the criteria, yet the impact on their lives (and occupation) has been considerable.

Macquarie Life Active does take into account, under the musculoskeletal system, where more minor medical criteria would have an impact on certain skilled occupations, for example, a surgeon losing the use of a finger.

Underwriting

There have been questions raised over how the underwriting process works. Underwriting for Macquarie Life Active is approached in the same way as Macquarie Life underwrites all of its offerings.

Similar to the product structure, the underwriting is a blend of trauma and TPD, and if exclusions are placed across the whole severity range of a particular disease or disorder, it is because there is coverage across this whole range, not just at the most severe level.

Product complexity (or lack thereof)

Australia’s underinsurance problem has been attributed in part to the generally confusing nature of life insurance products.

While presenting anything new to clients is an education process, I would argue that a product like Macquarie Life Active is ultimately easier to understand as it has real relevance to their lives.

It provides peace of mind that if something happens there is a greater chance of a benefit payment, including for many lower severity conditions than are covered in traditional TPD and trauma contracts.

Let’s think about motor insurance for a moment.

As a car owner you don’t need to understand how the engine works or what makes it work. What you do need to know is that if it gets damaged you can get it fixed, plus a hire car in the meantime.

To end where we started, Macquarie Life Active has brought to Australia a new category of life insurance and, as with everything new, the phrase the proof is in the pudding is very relevant.

Having reached a milestone of $1 million in submitted premiums just 10 weeks following its launch, with 180 advisers submitting applications for more than 500 clients, we’re pleased to see the product is being adopted by the industry as a valuable and relevant alternative to traditional options.

Justin Delaney is head of Macquarie Life.