Over the past year there has been a massive move in group insurance, as many funds with external insurers have announced premium increases of 30-50%.
However, NMG CEO Mark Prichard says that it is a necessary move, thanks in large part to lawyers getting involved in the process.
Prichard says that lawyers working on a ‘no claim, no fee’ basis are recruiting people with cover and submitting claims up to 10 or 20 years after the event. Many of the claims are too small for insurers to fight because the legal proceedings would cost equal to, if not more than, the claim.
“[Premium hikes] are necessary in the sense that current premiums are not sufficient to cover the claims being paid, but are perhaps not entirely necessary in the sense that a lot of these claims may not stand up to a rigorous legal process.”
He predicts a limitation on the time frame for claims and a change to the definitions in the policies – which are currently too easily contested by lawyers.
“Definitions relate to occupation and your ability to do your occupation and someone’s got to assess that ability. If someone’s got a bad back or a headache or psychological problems or things like that, how do you assess that? It’s subjective.”
Reinsurers have already noticed the unsustainability of TPD insurance in Australia, and RGA has suspended quoting activities for group TPD benefits in the country.
“In our opinion, the group TPD market in Australia became extremely competitive about five years ago, about the same time that insured benefits became richer in terms and conditions, weaker in the marketplace,” said president and CEO Greig Woodring.
The reinsurer will also be “exercising extreme caution” in other aspects of the group market.
There is another possible move that Prichard says could be on the cards, though he wouldn’t necessarily like to see it happen. That is, that industry funds may start asking themselves if they should take insurance matters into their own hands.
“Maybe they will start thinking that they perhaps can find a more sustainable type of structure if they own an insurance company themselves.
“I’m not necessarily recommending that because I think there’s all sorts of issues around that. How do you raise capital, and once you raise capital, are you most efficient party to have raised the capital?”
However, advisers and their client should be prepared for more increases says Prichard, and keep an eye out for changes in benefit definitions.