The role of Big Data

Additional expense needs, involving critical illness cover, barely make a distinction between initial and ongoing or recurring expenses for clients claiming from this cover. However, with recent product innovations in the market this could change.

I recently read an online article on the FAnews website regarding the role of Big Data and how medical advancements can play an important role in critical illness products.

Finding a niche

As an example, the FAnews article mentions a cancer pay-out product that was launched in Asia, which enables a cancer sufferer to claim a pay-out every two years until death.

While South Africa has long been a leader in the area of critical illness products, the majority of the product constructs still rely on a single lump-sum pay-out to fund the additional expense needs that may arise because of a dreaded disease or injury. This however, leads to the question of how appropriate is this to the clients’ actual financial needs at the time of claim?

For some clients, the lump-sum may suffice. However, the expenses that follow an illness or an injury event often fall into two categories which are, the initial immediate expenses plus regular and ongoing expenses that are not catered for by the client’s income protection and medical scheme benefits.

Cost quantification

Let us look at paraplegia as an example. After the first additional expenses of immediate family travel, accommodation and a shortfall in cover for specialist treatment, many more expenses are likely to follow. These include wheelchairs and accessories, modifications to homes and to vehicles, physiotherapy and other expenses for on-going care and assistance.

Big Data champion

This is where Big Data comes into the situation. With the advent of massive international clinical databases, it is now possible to access evidence-based clinical data on the average recovery durations for serious illnesses or injuries. This provides a significant opportunity for product providers to harness this data and integrate it into their product design.

Clients need the ability to choose between an initial lump-sum or a lump-sum followed by recurring pay-outs. With the analysis of international clinical data, this choice applies to the clients who will face a long recovery time and an on-going financial burden.

The beauty of information

The richness and scale of the data available, makes it possible to offer clients a range of pay-out options, based on their individual needs at the time of claim. This not only extends to the structure of the pay-out option, but also to the quantum of the pay-out.

Depending on the condition, the options chosen at inception and the choices made at the claim-stage, as well as the individual diagnosis and prognosis, a policyholder could potentially access pay-outs of up to 400% of the sum insured for related claims. In our view, the fact that this kind of flexibility and sophistication, complimented by clinical and technological advancements is now achievable is great news for financial advisers and their clients. However, it also creates an opportunity for South Africa to build on its reputation as an innovative leader when it comes to critical illness benefits.

Expense needs cover in action

The parents of twelve-year-old Albertina Jacobs* took out an insurance policy with BrightRock on the 1st of July 2013 and on the 11th of July the family was involved in a serious motor vehicle accident. Albertina was hospitalised for five weeks and diagnosed with a depressed skull fracture, which involved bleeding in her brain. Albertina’s parents opted to receive the lump-sum and recurring pay-out structure which consisted of, an initial sum of R120 000 and monthly recurring payments of R3 900 per month for 18 months. The total value of the pay-out amounted to R190 200. If Albertina fails her Activities of Daily Living (ADL) after 18 months, the pay-out will continue until R400 000 has been paid out, enabling the parents to afford the much-needed rehabilitation for their daughter.

* We used a pseudonym to protect the client’s privacy.