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Room for innovation

01 August 2008 Kenny Rabson, Discovery Life

While the introduction of objective, clinical criteria in the assessment of dread disease and disability claims has created greater efficiency and certainty, these assessment criteria still don't go far enough to address the long-term impact on lifestyle.

The current clinical assessment criteria consider only the initial clinical impact of the illness or injury at the point of diagnosis. While this may provide some indication of the possible long-term effects, it does not provide a comprehensive picture of how the illness or injury will affect the insured's lifestyle over time.

Inefficiencies

So when life assurers currently estimate the impact, and determine the benefit payout, they may under- or overestimate the policyholder's needs. The result is potential inefficiency, which can lead to a shortfall in the cover consumers enjoy – or in certain cases, over-insurance. And where there is inefficiency, there must be room for innovation.

To arrive at a more comprehensive picture – and a more accurate estimation of the benefit payout required to meet policyholders' financial needs after disability or severe illness several factors need to be considered.

Duration of the illness

There are some illnesses that have a greater impact on a person's expected remaining lifetime.

For example, both stage four cancer and paraplegia, according to the current criteria, are clinically very severe and would receive a similar severity rating and, therefore, a similar benefit payout. However, someone with paraplegia is expected to survive longer than someone with stage four cancer. The lifestyle impact over time would therefore be different, and the benefit payout needs to reflect this.

Treatment

The treatment that follows disability or illness can either have a more or less severe impact on a person's lifestyle. The impact depends on whether a condition or disability requires surgery, prescribed medications, rehabilitation or assisted care or devices. It also depends on the possible side-effects associated with the treatment.

Again, if benefit payouts are to address the needs that follow illness or injury effectively, the effect of the treatment needs to be taken into account.

Dependants

The more financial dependants one has, the greater the potential impact of illness or disability on your lifestyle. To ensure adequate coverage, the number of dependants at the time of claim needs to be factored in when determining the benefit payout.

Solutions

Using these factors to more accurately estimate the lifestyle impact of a life-changing event can reduce inefficiency and create room for innovation. A scoring mechanism to objectively measure the long-term impact of the illness will ensure that benefit payouts better reflect the needs of policyholders and create more efficient severe illness and disability assurance.

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