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Do Insurers Pay Claims?

The Factors Defining RiskIn my last article we explored the nature of insurers wanting to define risk and then pricing that risk on probable modelling. Where there is insufficient evidence to be able to accurately predict future experience many insurers will often decline to quote.

We considered this with respect to the arrival of COVID-19 and its possible impact on claims experience and the future. While many insurers put impositions on new policies it is fair to say the initial expectations have not been as dramatic as first anticipated. The result is that the restrictions have now largely been lifted.

It’s important to re-iterate that these restrictions on life, trauma and disability policies were only ever for new policies to be issued. Insurers are not able to retrospectively apply exclusions or restrictions on existing policies. There is usually an across-the-board ability to increase premiums for many policies but this needs to be to all policy holders and is a pricing variance not a declinature of cover. This would apply if actual claims experience was way beyond the norm.

COVID-19

So, now we are nearly a year into living with the virus, what actual experience did insurers in New Zealand have.

AIA confirmed they had nearly 250 claims as a direct result of COVID-19. Two of these were Death Claims - I suspect given the average age of the deceased in New Zealand these were likely to be either Funeral Cover type policies or Credit Card Protection policies.

All other claims were due to Redundancy and these were either income replacement policies, mortgage protection policies or again credit card payment protection programmes. The amounts involved were relatively minor given the total payout was just over $400,000.

What is yet to be seen is if there are any long-lasting health effects on those who have been infected and whether this will evolve into claims on medical policies.

Business As Usual in 2019

AIA recently released statistics on the claims they paid in 2019. Of claims submitted over 94% were accepted and settled. So much for the “insurers are always looking to avoid paying claims” sentiment that is often heard.

The 6% of claims not paid would primarily fall into two broad categories:

  1. The claim was not actually covered by the policy - for example, a claim for a regular dental check-up when dental coverage is not part of a medical policy.
  2. Non-disclosure by the insured when establishing the policy that only comes to light when a claim is submitted. The insurer is entitled to void the policy should not all relevant information be made available when applying for cover. This can also include an unrelated condition for which the claim is made. For example, a disability claim for a heart attack may be voided if a declaration to past cancer treatment was not provided. It is important that all information is provided at the time of applying for insurance.

So, what did 94% of claimants receive? Well, in broad categories the following was paid:

Death $210,767,557
Trauma $82,393,062
Total Permanent Disablement $14,689,012
Income Protection $62,619,953
Medical $97,959,763

A total of in excess of $468 million.

More importantly, there were claims paid across all age ranges confirming that life-changing events can happen at any stage of life.

20-29 $10.2 million
0-39 $36.2 million
40-49$102.2 million
50-59$163.0 million
60-69$103.0 million
70+$47.5 million

One salient point from the Income Protection Claims data; nearly 25% of the amount paid in claims was for Mental Health and in each ten year age band it was either the largest or second-largest cause.

Some insurers offer reduced premiums for taking a restricted Mental Health cover. Often by reducing the maximum benefit payment period to 2 years. However, if it is important to protect your income from “any cause” then surely full cover for any event or condition would be the preference. The premiums saved versus the reduction in cover won’t look as clever should a claim arise.

Claim statistics can be viewed in one of two ways. “Those poor people who suffered death, trauma, disability or medical procedure” or “How fortunate were those folks that when the unexpected event happened they had taken steps to protect their financial wellbeing.”

There are plenty of folks who will experience the event and also suffer financially because they didn’t plan. Try not to be one of these folks.

 

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