Generosity at the root of disability insurance problems

The Australian disability income insurance sector is continuing to struggle in part because the products being used by both superannuation funds and advisers are too generous, according to a new whitepaper analysis produced by major reinsurer, Gen Re.

The whitepaper, released this week, has outlined the key contributors to the problems around disability income insurance (DII) as being:

• The generosity of the products stifling self-motivation for an early return to work;
• A claims handling approach that shows scars following increased media scrutiny and is based on misunderstood customer-centricity; and
•  The eternal hope that a worsening trend will ultimately plateau and rate increases will restore profitability.

The whitepaper said that, contrary to some commonly views, the problems were not being caused solely by more mental health claims, economic factors such as lower interest rates or even the manner in which advisers were being remuneration.

It said that, overall, insurers needed to fundamentally redesign their current DII products, align claims management capabilities with new products and fine-tune the underwriting.

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The whitepaper said that DII could be more generous in parts but, overall, had to adhere to simple insurance principles.

“… actuaries must adopt a long-term view,” it said. “With few large players in the market, the myth of first-mover disadvantage disappears. It is time to lead the change and benefit from it.”