Mental and physical wellbeing have significant financial implications for your clients
Financial advisers and planners have countless opportunities to influence positive client outcomes in a range of non-financial disciplines. In recent newsletters we shared the need for advisers to consider aspects such as health, social networks, and wellbeing in addition to traditional financial portfolios. The correlation between improved financial outcomes and wellness is already widely accepted by health and life insurance providers. “The joining of insurance and wellness is the most obvious marriage in the world,” said Gareth Friedlander, Discovery Life deputy CEO. He was commenting during an exclusive interview with FAnews to discuss the life insurer’s 2019 claims statistics.
Accident and suicide on the rise
The value of death, disability, and severe illness benefits is clearly illustrated by the R4.8 billion paid by the life insurer to beneficiaries and policyholders during 2019. This total included R2.28 billion in life benefits; R1.1 billion in severe illness benefits; and R816 million in disability benefits. A trend that advisers should keep an eye on is the rising proportion of unnatural death claims that occur due to motor vehicle accidents (at 33%) and suicide (28%). “These unnatural deaths talk to the need for insurance and serve as a stark reminder that many 21 to 30 year olds die unexpectedly each year,” said Friedlander. Advisers should draw their client’s attentions to the hard truth that risk insurance performs best following unexpected events.
The spike in suicides has underlined the need to focus on mental health in addition to physical health. “Our Vitality programme used to be solely focused on physical health; but we have become acutely aware that your clients need both,” he said. We asked Friedlander whether the insurer’s second quarter 2020 claims experience offered insight into the impact of pandemic and national lockdown on mental health. He observed that although the latest statistics had not yet been interrogated there was a sense that the mental health fallout from these events would be significant over time: “There is going to be a long tail to both the economic and associated mental health fallout from lockdown”.
Financial outcomes through wellness
It is difficult to discuss the positive impact of a single insurer’s wellbeing product objectively; but one of the statistics shared in Discovery Life’s media release is worth expanding on. They noted that life insureds who were highly engaged on the Vitality programme, by achieving gold or diamond status, presented a 53% lower mortality risk. We have attended many wellness-focused presentations over the years; but are still in awe of such statistics. A financial adviser nowadays has easy access to lifestyle tools that will result in significant financial and wellness outcomes provided his or her clients are fully on board. “An analysis of our books confirms that financial advisers are a major influencer of client engagement with our wellness programme,” mentioned Friedlander. “These advisers build their practises around the programme and pride themselves on getting their clients to the highest statuses”.
If the improvement in mortality risk is not enough motivation to throw your weight behind a life insurer’s wellness offering, you might consider the impact of client engagement on lapse rates. “There is lifetime value for all stakeholders in terms of improved mortality and a better lapse experience, with clients who are engaged in wellness programmes tending to lapse at about 60% lower rates,” said Friedlander. An adviser is able to build a more persistent book over time and incur fewer commission clawbacks. The engaged client, meanwhile, benefits from a combination of appropriate risk cover, coupled with various other wellbeing-linked incentives.
Balancing comprehensive cover and cost
The Holy Grail for an independent financial adviser is to structure a comprehensive portfolio of death, disability and severe illness cover. An issue that most will encounter during their discussions with clients is that the optimal solution is way too expensive. Which of these benefits is more important and how should an adviser proceed to ensure the most efficient combination of cover type and sum insured? “We cannot prescribe which of these benefits should be favoured over the other,” said Friedlander. “As a starting point, we encourage advisers to complete a full financial need analysis to determine the best solution for each client”. In the event this solution is unaffordable, most advisers will reduce the levels of cover proportionally across the various benefits.
Stakeholders in the life insurance industry will have to be flexible in their response to the socioeconomic impact of coronavirus. Discovery Life has, for example, allowed its policyholders to access their accumulated payback benefits to offset monthly premiums. “We have seen about R30.8 billion of business being kept in force by clients being able to access their future paybacks to pay their premiums today,” said Friedlander. The insurer has also introduced a new multi-organ benefit category under its severe illness cover as more information comes to light about the nature of the COVID-19 disease.
Accommodate new diseases
It has become clear that COVID-19 is more of a vascular than respiratory disease, and although it commonly plays out in the respiratory system it also affects other organ systems such as the heart, kidney, and liver. There was a risk, explained Friedlander, that the disease would impact multiple organs without causing the degree of failure necessary to qualify for an individual organ claim pay out per the existing severe illness benefits. “You may not meet the definition of a severe illness in terms of the policy wording despite the aggregate impact on your health being severe,” he said. “We had to redesign the benefit to pay out in the acute stage of the illness because we did not know what the long term impact might be”. The multi-organ benefit is designed for the acute manifestation of the illness rather than the long term chronic view.
The multi-organ benefit is available on all new Discovery Life severe illness policies; but is only available to existing policyholders as an upgrade that will add to their premium. Financial advisers can use this new benefit as a trigger for a review of their clients’ life risk portfolios.
Writer’s thoughts:
One of the similarities between financial advisers and insurance product designers is the trade-off between covering all possible ailments and cost. Financial advisers navigate this by reducing sums insured; product designers must carefully weigh up the likelihood, severity, and level of cover for each covered peril. What trade-off do you make to achieve the best outcome for your client’s death, disability, and severe illness benefits needs? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
