Category Life Insurance

Bungled waiting periods beget unpaid claims

18 October 2023 Gareth Stokes

Financial advisers and planners who advise clients on complex death, disability, severe illness and income protection policies must make sure that these products perform ‘as expected’ when a life altering event takes place. This requires an intimate knowledge of how a product performs in addition to doing the math on adequate sums insured and the affordability of monthly premium.

Most NB IP decision you can make

An important lesson from the Bidvest Life 2022 Claims Report was that the waiting period chosen on an income protection product is crucial, possibly even more important than the sum insured (more on this in a moment). First, we offer a snapshot of the insurers’ latest 12-month claims experience. Income protection accounts for almost two thirds of Bidvest Life’s 2022 claims paid, at 58.5% with the next largest categories being critical illness lump sum (21.4%); life lump sum (9.2%); and disability lump sum (4.9%). “Income protection makes up the majority of our claims which should not come as a surprise given that we historically sold income protection before adding other life benefits,” said Nic Smit, Acting Chief Product and Pricing Actuary at the insurer. 

The insurer reported that 89% of its lodged, unique income protection claims were paid during the period under review, with Smit spending some time discussing how this percentage was derived. He noted that income protection claims typically had a higher decline experience due to there being more exclusions and more checks that insurers had to complete before paying. Many life insurers strip out invalid claims prior to running this calculation, artificially inflating their performance. “Everyone lodges a claim with the expectation of it being paid; by excluding those claims and reflecting on a claims pay-out ratio by valid claims only, we are missing a trick,” Smit said. 

Short-duration claims dominate

The top three reasons given for the non-payment of income protection claims include claims that were of shorter duration than the applicable waiting period; non-disclosure; and claims which did not provide supporting medical evidence. 

An individual who has a 30-day waiting period on their income protection cover, and is unable to work for 21-days, will often lodge his or her claim before the waiting period requirement has been met. Smit pointed out that if such claims were stripped out of the statistics, the claims pay-out ratio would improve from 89% to 93%. The waiting period is, therefore, among the most important factors to consider when structuring your client’s income protection cover; and it is the most important thing that your clients need to understand about the cover you have sold them,” he said. 

The stats that followed are ‘gold’ for financial advisers keen to understand the experiential realities of the South African income protection landscape. It turns out that 36% of income protection claims have a duration of 14-days or less; 18% span 15- to 30-days; and 32% have a duration of 30- to 90-days. Around one in 10 claims have a duration of 90-days to one-year; with the remaining 4% being more than 12-months in duration. Smit explained: “This cover is typically sold on a 7-day or a 30-day waiting period; if your clients choose a 30-day waiting period, they are covering themselves for less than half of the events they would be able to claim for on the 7-day waiting period … your clients expect to be able to claim, but then realise their waiting period is too long”. 

Financial advisers should pay close attention to the waiting periods their insurance partners offer to ensure that clients benefit from the product innovation in the income protection segment. Case in point, Bidvest Life offers 7-day waiting periods for self-employed commission and contract workers; and 14-day waiting periods for salaried earners. The former option is great for real estate agents, as one example. It is also possible to split cover amounts across different waiting periods, for the more creative advisers out there. Smit noted that the split of cover across waiting periods can help individual insureds to cover both their basic and commission income flows. 

Common-sense approach to claim requirements

Another important consideration when choosing an income protection provider is the time it takes for a claim to be settled following its lodgment. In 2022, the insurer achieved an average submission-to-payment period of just 16.5 business days for the 89% of income protection claims that were successful. Hidden within this statistic, 32% of claims were paid within five business days and 50% within 10 business days. “Income protection claims need to be paid out fast so that you do not need to make difficult decisions around realising clients’ investments,” Smit said. He added that keeping the claim time ‘manageable’ required a common-sense approach to claims submission requirements and warned against onerous requirements. 

Commenting on policy terms and conditions, the conversation quickly moved to strategies that can expedite claims pay-outs. Smit discussed “a completely different approach” of including 209 fast-track criterion on the insurer’s income protection benefits. The idea is to ensure hassle-free claim experiences for insureds who suffer any of 209 events that “prevent people from being able to work”. Categories mentioned during the discussion include minor infections; cancer; rotator cuff repair; fracture of the ankle; and therapeutic arthroscopy or synovectomy of the knee or shoulder. 

“The fast-track criterion appeared in a lot of 2022 claims,” Smit said. “When one of these events happen to your clients, we start working on paying their claim instead of asking a whole lot of questions about the impact of the illness or injury; occupation; how the injury or illness affected ability to work; etc.” 

Claims: where the rubber hits the road!

The presentation dipped into a myriad other cover types which will not be explored in today’s newsletter. This decision supports the fact that protection for your younger clients’ income generating capabilities should be the primary focus of a comprehensive life insurance solution. And we close with Smit’s praise of his claims team, which remains at the coalface of your clients’ interaction with their life insurance partners. “My heart says [that advisers do business with us] for our innovative product; but my head tells me that the claims department is what [gives us our edge],” Smit concluded. 

Writer’s thoughts:

Two facts shared during this life insurer claim statistics update were that income protection is important for younger clients, and that waiting periods make all the difference when it comes to meeting your clients’ income protection claim expectations. Do you agree with these insights? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts

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