A year in review – insights from our claims data.

Sovereign’s claims provides a snapshot into the health issues affecting New Zealanders. I dove into the detail of our $380 million claim payments for the most recent financial year to see what the data would reveal.

About 45% of Sovereign’s claims related to life cover payments for those customers who died or became terminally ill. Half of these claims related to cancer, 15% to heart attack, and 10% due to a stroke. Sadly, about 5% of claims related to suicide and this figure increases to 15% for those customers aged under 40.

Mental health is also a factor in around 25% of Sovereign’s income protection claims; on par with cancer and heart disease. A recent report released by the Royal Australian & New Zealand College of Psychiatrists estimated the total cost to the New Zealand economy of mental illness to be about $17 billion (7% of our GDP). As we look at these cold and hard figures, it’s easy to lose sight of the associated impacts on our families and communities.

Whilst insurers have some way to go to better understand mental distress and to develop more inclusive insurance options, I take pride in the great work that our claims team does in supporting customers to get back on their feet. Last year, we spent around $1 million on rehabilitation services to support our income protection customers in their recovery. This money was used to pay for psychological support, occupational physicians, and even exercise programmes.

When it comes to health insurance, we paid about $70 million to support customers to access medical treatment. There continues to be a trend towards more effective and less invasive treatment options, particularly in the area of cancer care, which represents 15% of total claims. It’s hard to believe that the first private radiotherapy clinic opened in New Zealand in 2008 and just ten years later, private funding has enabled New Zealanders to access state of the art medical treatment.

Gynaecological claims (such as endometriosis) were also significant – representing about 22% of total claims for females. Access to publicly funded treatment for these complaints can be uncertain but the conditions themselves are very common – for example, one in 10 Kiwi women will develop endometriosis throughout their lives.

Finally, we paid out more than $50 million in trauma claims to help customers recover from serious medical conditions. Whilst medicine has made major progress in treating serious illness, the costs of treatment and recovery can nevertheless be significant. Modern trauma products today cover over 60 medical conditions and yet over 90% of claims continue to relate to cancer, heart disease, and stroke.

When we look at these numbers, it’s easy to see that insurance remains just as relevant today in protecting New Zealanders against the financial impacts of death, illness, and disability. Nobody wants to claim on their insurance policy but it’s a relief to know that it’s there.

 

How the DIY diagnosis will shape insurance

I recently stumbled on this site, which is crowdsourcing voices as part of a study to determine whether Parkinson’s disease can be detected by analysing phone-quality voice recordings. The research aims to build on recent studies that successfully demonstrated that the disease can be diagnosed by analysing speech recorded using high quality audio devices. The hope is to develop an app to test for Parkinson’s disease.

The rise of low cost diagnostic testing has the capacity to transform the insurance industry in a number of ways.

Genetic tests open up the opportunity for more individualised care. In 2013, Angelina Jolie publicly announced that she had undergone a prophylactic procedure to remove her breasts because she faced a heightened risk of breast cancer as a carrier of a defective BRCA gene (the gene produces proteins responsible for supressing tumours). In the coming months, screening of the defective gene rose by 37%. Three years later, New Zealand health insurer, Southern Cross, introduced an allowance to enable high risk members to seek prophylactic mastectomy treatment. Amongst the eligibility criteria is a positive genetic test confirming a defective BRCA gene.

Low cost testing also creates the opportunity for earlier diagnosis and treatment. In the case of some degenerative disorders, such as Parkinson’s Disease or Multiple Sclerosis, early symptoms are generally vague. Low cost testing provides an opportunity to screen patients for a broader range of conditions at an earlier stage, bringing forward diagnosis and treatment. Health funders, including the public sector, are generally reluctant to cover routine screening on the basis of cost-benefit. However, the value equation is changing as tests become more cost effective. Shameless promotion: Sovereign Private Health Plus provides a $500 health screening allowance (every three years after three years).

Finally, the availability of at-home diagnostic tests allow people to screen themselves in the privacy of their own home. We are familiar with at-home pregnancy tests but did you know that you can now screen yourself for HIV, Hepatitis, or elevated cholesterol? Whilst the democratisation of medical information is empowering, it does create disclosure risks for the insurer: information gained outside the traditional medical system may be undiscoverable to insurers, which increases the opportunity for anti-selection. The insurance system cannot function efficiently if customers avoid disclosing known risk factors.

As with any new technology, changes in diagnostic medicine bring both threats and opportunities. The challenge for insurers is to find a way to embrace these developments to enhance, rather than restrict, the customer value proposition.

Are you making good financial choices?

In 2015, US insurer Prudential ran a series of ad campaigns highlighting the biases that lead people to make poor financial decisions. These biases, known as “heuristics”, are mental shortcuts that enable us to make quick decisions that are practical but not necessarily optimal.

Heuristics served our Neanderthal ancestors well back when decision making was simple. For example, if Ancestor Joe wrongly assumed that a strange red fruit was poisonous, he would have missed the opportunity to enjoy a delicious snack. In modern times, decision making is far more complex and the stakes are higher, particularly in financial matters.

I was recently reflecting on decision making in the context of insurance. Consider these facts: about 90% of Kiwi motorists have car insurance, whilst just 25% of income earners hold income protection cover. Why the gap? The Financial Services Council offers some possible explanations:

  • Kiwis are more familiar with car insurance than income protection insurance;
  • Reliance on ACC for income support; and
  • Perception that income protection cover is too expensive.

Another possible explanation is the concept of “loss aversion”. Studies have shown that the pain of a loss is twice as great as the pleasure of a gain. In other words, people are more worried about paying for damage to their car after an accident than the risk of losing income if they are unable to work due to injury or illness.

Don’t believe me? Imagine how much more likely you would be to purchase income protection cover if you received your annual salary at the start of each year and you were required to pay it back if you were unable to work.

Another heuristic that leads us to make poor insurance choices is “availability bias”. We tend to worry about things right in front of us. A famous study by the founders of Behavioural Economics, Daniel Kahneman and Amos Tversky, showed that people assessed the risk of an earthquake in California to be greater than the risk of an earthquake in the United States. The study exploited the fact that earthquakes commonly occur in California and are often reported on by the media. Therefore, it’s not surprising that we tend to be more concerned about car accidents, which most of us are regularly exposed to, than disablement.

You can check out the Prudential ads here. And to avoid potentially costly financial mistakes, it pays to get some good advice.

Insurance is as important for the mind as it is the body

Five Ways to WellbeingMental health is no different to physical health: we can no less escape the constraints of our minds than we can the frailties of our body.

If we look at the numbers, we find that one in six Kiwis will at some point in their lives be diagnosed with a common mental health disorder. Many more will experience episodic challenges.

As an insurance guy and an actuary, I am passionate about the vital role that insurance can play in helping New Zealanders who are experiencing mental health issues.

Sovereign’s disability income claims data shows that mental health issues tend to require more recovery time than other health issues. About 50% of mental health claims remain open one year into the claim. This compares with 15% of injury clams and 35% of illness claims. In fact, the average length of a mental health claim is about 260 days – the only other condition that comes even close is cancer at about 210 days (the next highest duration is cardiovascular at 140 days).

We understand that our customers need more than financial support. That’s why we take a holistic approach to claims and spend considerable effort supporting customers with their recovery journey. For example, we offer customers access to a dedicated case manager to help co-ordinate private psychological support, occupational therapy, vocational re-training, and return to work support. Helping to support customers back to living their lives not only makes good financial sense but is a core part of our brand promise: being the difference in life’s moments of truth.

Several months ago, I had the privilege of facilitating a mental health panel at our bi-annual Adviser conference. Amongst the panellists was Shaun Robinson, CEO of the Mental Health Foundation. Shaun spoke of the mental health challenges and opportunities facing our nation. I especially connected with the “Five Ways to Wellbeing” – simple, evidence-based actions that help us maintain positive mental health. These are:

  • Connecting (me whakawhanaunga) – connecting with our families, our friends, and our communities gives us a sense of belonging and a wider purpose in our lives.
  • Giving (tukau) – giving our time, energy, attention, or financial resources is shown to significantly improve our own happiness;
  • Take notice (me aro tonu) – slowing ourselves down each day to notice ourselves, others, and our environment is both calming and helps us focus on those things that matter;
  • Learning (me ako tonu) – people are curious beings. Indulging our interests is both incredibly enjoyable and helps to give our lives a sense of balance; and
  • Being active (me kori tonu) – physical activity helps to keep us healthy, resilient, alert, and feeling good.

If we think of our mental health as a bank account, regular “deposits” of these five actions helps us to accumulate a surplus of positive mental wellbeing to guard against the inevitable bumps in the road.