2 April 2020

Andrew Proudfoot

Director - Risk and Succession

Coronavirus (COVID-19) has triggered a public health crisis and a deepening financial crisis. It has also given rise to several implications for Australian Life Risk Insurance. There are certain life risk insurers and re-insurers that have begun adapting their guidelines to the evolving COVID-19 health and financial environment with news reports on Friday, 27th March 2020 highlighting the underwriting position of one life office for new policies. In light of this, it is important that you understand the developments and how they impact life risk insurance policies going forward.

When discussing life insurance products, it is important to distinguish between the nature of cover:

  • Group insurance: typically obtained by default through industry or corporate funds;
  • Direct insurance: typically obtained on the internet or by phone without advice; and
  • ‘Retail’ advised cover: typically obtained through a financial adviser.

It is also important to distinguish between the type of cover, including Death, (Total Permanent Disability) TPD, Trauma and Income Protection, with each being assessed differently.

The majority of our clients have bespoke Life Risk Protection Portfolios: tailored, retail advised cover which, in some cases, contain top ups or retained covers in group schemes (often for medical or financial reasons). Each type of cover is underwritten and assessed differently depending on the circumstances.

 

Existing cover held prior to the COVID-19 Crisis

It is important to note that the majority (99-100%) of Australia’s existing lives insureds will not have any pandemic (COVID-19) exclusions. This percentage moves closer to 100% if the policy was purchased through an adviser on ‘retail contracts’. However, there are some legacy nuances that may exist. Full cover will typically apply, so it is important to note that the comments below are largely relevant to only new or additional cover. It is strongly recommended that individuals always read their insurance policy documents, including, but not limited to, Product Disclosure Statements, Insurance Guidelines, Trust Deeds, Policy Schedules and Documents particularly if the policy is now off-sale (i.e. a legacy policy or closed to new business).

In times of crisis, it is critical to avoid rash decisions pertaining to life policies based on the information circulating on news channels, social media or amongst friends and family. Life policies are, at present, one of the most important financial insurance contracts one is likely to hold (across private health, car, home insurance business lines etc). Pseudo scare mongering by the media when over $9 Billion is paid per annum in claims in this market is not helpful during a pandemic. We want MGD clients to take comfort from their policies, understand them and take account of the sums insured, the premiums, the contract terms and the policy quality. Our firm has overseen more than A$12 million in claims over the course of the past four years alone, with no clients having been declined during that period.

As long as individuals follow government warnings, comply with their duty of disclosure and continue to pay their premiums, retail advised cover through an adviser is guaranteed renewable, 24/7 worldwide cover and unlikely to have any pandemic exclusions.

 

New policies (at the time of writing)

There are around half a dozen behind-the-scenes life reinsurance manuals that Chief Medical Officers (CMOs) in Australian Life Insurance offices work from, assessing a multitude of risk factors when evaluating applications for life insurance. CMOs are typically eminent professionals from across relevant medical specialties who are trained in life risk matters pertaining to complex underwriting and claims. As with any new policy or application for additional cover, a person’s existing health, occupation, age, gender, income, pursuits, pastimes, travel intentions, family history and a range of other factors are all relevant. The extent to which these are underwritten based on these reinsurance manual guidelines at inception drive whether a person can obtain cover and on what terms. COVID-19 is but one factor. Confirmed or potential future international travel, for example, is likely to result in a COVID-19 exclusion.

However, there are life offices currently writing significant levels of additional cover, as Australians (including health care workers) rightly look to protect themselves and their family members from major illness, incapacity or premature death. Not all applicants will have exclusions or be subject to loadings. Retail advised cover positioned appropriately with an underwriter across our researched, approved panel of life insurers can manage these issues in different ways, so it is business-as-usual from our perspective.

To discuss obtaining additional cover on existing policies or to obtain a new policy, please book a conversation with one of our team.

We can turn around Time Critical matters within hours on a case-by-case basis. Solutions for more complex family, business or UHNW client situations/ structures are also available. Please get in touch if you would like to discuss your situation with one of our team.

 

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the insurance objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.