Who offers the best risk products?

The changing face of life insurance can be confusing to those not following the movements in products and suppliers. Doug Scriven takes a look at what has happened in recent months and what this means for those seeking to advise on risk insurance.

Given the large number of recent policy upgrades and revisions, selecting the right life insurance products for individual clients is not getting any easier.

In the first quarter of this financial year alone, LifeSource Technologies updated 107 policies within the software systems of parent group IDT Financial Planning.

The reason for these wide spread changes came as product conditions, benefits, features and options have all expanded making product selection more complex than ever before.

Disability agreed value policies have become more expensive and in some cases there has been a roll back of benefits. In contrast, the cheaper indemnity style policy has grown in numbers now accounting for a quarter of all disability products in the market. Changes to life, trauma and TPD policies have generally improved the policyholders right to claim and for some people, benefits such as TPD are now more affordable.

So with all this change who offers the best products for your client today?

As you are probably aware, the life industry does not offer a one size fits all policy. The question of best product is a subjective issue that depends on the individual needs of each client.

Most advisers and planners will be familiar with discovering a client's individual circumstances, attitudes and concerns in order to objectively satisfy the need with a suitable product.

The following briefly goes through each product and, with the table, lists the recent changes in that area.

Disability Insurance- disability products can be sorted into three types, each having an application defined by occupation and employment conditions.

Agreed value policies (table 1) are necessary for self-employed persons on fluctuating incomes. This type of disability product guarantees the face value of the policy and future indexation increases that are unaffected by any reduction in earnings prior to claim.

The less expensive indemnity policy (table 2) is quite suitable for employed persons on a relatively static income. Even though there isn't any guarantee on the face value of the policy, benefits from this type may not be affected at claim time providing the insured's income remains stable.

After determining the appropriate disability policy type, consideration can then be given to each policy's core definitions and limitations as these define the policy owner's right to claim benefits (tables 1 and 2).

From a shortlist of suitable products, it is then possible to determine those that offer specific features to best satisfy the clients needs and objectives.

Disability products have different features, some of which are exclusive to a single underwriter (table 6). In some cases, identifying the clients need for an exclusive benefit can simplify the purchase decision.

Life, trauma and TPD insurance - Although trauma policies include a large number of additional medical conditions that require consideration, the selection process can be less complicated. Current definitions of major trauma conditions responsible for a majority of claims are of a relatively high standard. This allows more time to identify those policies with other conditions that have particular relevance for the client (table 7).

One example of an uncommon trauma condition is cover for 'carcinoma in situ requiring radical surgery'. This benefits the policyowner in the event that radical surgery is necessary to arrest the spread of a non-malignant cancer.

Underwriters covering carcinoma in situ requiring radical surgery include:

AMP, Lumley and RSA with a 5-Star rating as these cover carcinoma in situ anywhere in the body providing radical surgery is required to treat the condition.

Citicorp, Colonial, MLC, Norwich and Suncorp are 2-Star rated as this definition is limited to carcinoma in situ of the breast providing this leads to mastectomy.

Trauma diagnosis benefit -the trauma diagnosis advancement benefit is exclusive to Tower Life. This delivers a partial benefit payment upon diagnosis of a specified medical condition. It may benefit both the insurer and the policyowner by providing finances for early medical treatment or voluntary leave from work, thereby improving the chances of remission or recovery.

A thorough knowledge of both the client's needs and the available benefits helps to direct the process of product selection but there is currently still no means of independently assessing the profitability of individual products and so the question of premium sustainability remains unanswered.

Nevertheless this issue requires consideration, but should be reserved until there is a refined shortlist of suitable products for recommendation. In this way, the process of delivering quality advice remains balanced and objective in consideration of all issues relative to the clients needs.

Today's adviser should be familiar with individual client needs, have the resources of quality research and be mindful of premium sustainability issues. As the complexity of the life insurance industry grows and industry reforms take affect so will the need for independent research, effective education and professional development of advisers in the field.

Doug Scriven is director of research at LifeSource Technologies, a subsidiary of Investment Data Technologies (IDT).

Table 6. Examples of Exclusive Disability Product Features

Product Feature Description

Loss of Profits Benefit (Tower) caters for self-employed persons by providing benefits to those who suffer a loss in turnover following a return to work

Mental Disorder Limitation Discount (Merc) provides a premium saving of up to 15%, the underwriter's liability for claims associated with Mental Disorder is then reduced to the value of twelve monthly benefits

Spouse Cover Option (Zurich) provides the reimbursement of costs associated with domestic help, child care and rehabilitation of a spouse who is occupied in home duties

Dependency Benefit (RSA) provides an additional 33% of the monthly benefit in the event that the insured is unable to perform 2 or more activities of daily living

Associated Policy Premium Waiver (Suncorp) waives premiums on associated policies when an insured is on disability benefits

Health Insurance Premium Waiver (AXA) waives health insurance premiums when the insured is on disability benefits

3 Year Premium rate Guarantee (Tower) guarantees that premiums will not increase during the first 3 years from the policy's commencement

Table 7. Examples of Unique Trauma Product Features

Product Feature Underwriter (benefit description)

Benign Brain Tumours AMP, AXA, Lumley, Merc, Norwich, Suncorp, Tower and Zurich

Benign Cardiac Tumours Colonial and Norwich

Cardiac Keyhole Surgery MLC & Suncorp

Children's Trauma Cover AMP, AXA, Citicorp, Lumley, RSA, & Tower

Child's Future Insurability for Life Cover Lumley

Accidental Injury Benefits MLC

TPD own occupation on Superannuation MLC

Future TPD Insurability

(Domestic Purposes) Norwich and Tower

Forward Underwriting for Life Cover (Business Insurance Purposes) Lumley and Norwich

Forward Underwriting for TPD (Business Insurance Purposes) Norwich

Paralysis Support Benefit Tower (additional benefits when paralysed)

Trauma Waiver of Premium Suncorp (waiver of premiums on other associated Life & TPD policies when a trauma benefit is fully paid)

THE FOLLOWING NEEDS TO BE IN A SMALL FONT AND PUT AT THE END OF THE LAYOUT. IT IS JUST EXPLANATORY STUFF.

Ratings and rankings are current as of the 1st of November 2000.

This information is of general nature as there is no consideration for individual need, circumstance or concern. It is the opinion of the researcher that recommendation of "most appropriate" product can only be achieved following the selection of specific policy conditions for inclusion within a qualitative analysis.

General Rating Legend, Tables 1, 2, 3 & 4.

"Core Definitions Rating" refers to the overall score associated with the policyowners right to claim (e.g. definition of Total Disability).

"Limitation Definition Rating" refers to the level of limitations that the policy may include (e.g. Exclusions, Offsets).

"Essential Benefits Rating" refers to the overall standard and number of benefits available within each policy (e.g. Increasing Claim, Rehabilitation, Stroke)

"Total Score Rating" refers to the overall score in consideration of all generic policy conditions surveyed.

"Overall Score Ranking" is the overall competitive position of each individual product in consideration of all generic policy conditions available within the policies surveyed.

Disability Policies Occupation Legend, Tables 1,2 & 3.

"WCP" refers to "White Collar Professionals" with suitable qualifications to practice professionally (e.g. Doctors, Solicitors, and Accountants).

"WCM" refers to "White Collar Managers" with significant income, experience and training in a given field (e.g.. Executive Managers with substantial responsibility).

"WCS" refers to "White Collar Skilled" persons in sedentary positions such as clerical and administrative employees with little or no manual duties.

"BCS" refers to "Blue Collar Skilled" persons such as qualified trades people.

"BCM" refers to "Blue Collar Manual" persons who are unskilled within occupations of high risk.

Major Trauma Medical Definition Rating Legend, Table 5.

The "Major Trauma Medical Definitions" have been independently assessed with the assistance of industry experts including Chief Medical Officers, Reinsurers and lifeSource Technologies. The assessment includes consideration of "Intention" (the policyowner's right to claim admission), "Clarification" (the explanation of medical terminology), "Medical Accuracy" (the assessment of diagnostic and treatment procedures referred to within the definition wording) and "Interpretation" (the measure of ambiguity that could result in claim dispute).

"5-Star" Excellent, "4-Star" Very Good, "3-Star" Acceptable Standard & "2-Star" Sub-Standard

Disclaimer: No representation is given, warranty made or responsibility accepted by LifeSource Technologies or Investment Data Technologies as to the accuracy of the information provided. LifeSource and IDT will not be liable to the reader in any manner as a result of reliance on the information provided within this editorial (except statutory liability that cannot be excluded). LifeSource Product Ratings and commentaries are opinion and not statements of fact or promotion, nor do they constitute advice regarding the recommendation, discontinuance or purchase of insurance products.