Insurance for the greater good

New Zealanders often take pride in our notable rankings on the world stage, whether it be our privileged political freedom, our happiness, sporting achievements, low levels of corruption or topping the World Bank Group’s ‘ease of doing business index’ two years running.

While these rankings shine a positive light on our small and nimble country, we are not performing as well when it comes to insurance. In fact, according to OECD calculations, New Zealand is amongst the most underinsured countries in the world.

We have an aging population, and with more and more people relying on our public health system, the burden on hospital waiting lists and welfare services will continue to grow.

Insurance plays a critical role in reducing this burden, a societal contribution that I would really like better understood. Last year Sovereign paid out more than $350 million in claims, including more than $11.2 million in claims for mental health related conditions. While we’re proud of the role we play in our community, imagine if the number of our customers – and therefore, claims – could double, or even triple. That would take huge pressure off the public health system and free up waiting lists and medical resources for those who really need them.

So why are New Zealanders so reluctant to cover themselves and their families for the worst that might happen? There are a number of reasons, and various ways the industry and other business leaders can help move the dial.

For starters, many people don’t fully understand how insurance works or why they need it. Insurance products can be complex – that’s why we are doing everything we can to simplify the way we communicate our products, creating digital tools for our advisers and connect with new customers via social media. We’re challenging the way things have always been done.

Financial advisers also play an important role in providing advice and support to people as well as helping their clients through the claims process. This personal, tailored service helps to build consumer trust in the industry and ensures families have the right level of cover for their needs.

Cost can also be a barrier when considering insurance, which is why we have a range of products and options to make it affordable. The reality is that insurance can protect your greatest asset, the ability to earn, if you are unable to work due to illness or injury. It also gives you access to the latest proven medical technology quickly and makes sure your loved ones are cared for after you’re gone.

I recently visited several of our customers who have made a claim, and they all told me how important it’s been having their finances taken care of while they undergo treatment and recover from illness and injury. We come into our customer’s lives during the most stressful and traumatic events, and it makes me incredibly proud to hear about the difference we’ve made to them and their families.

I believe all businesses can have a positive influence on their employees’ financial wellbeing and assist them in planning for the unexpected, whether it’s through education or access to group insurance schemes. This is the challenge that lies before the whole of New Zealand and we are certainly going to play our part to see that this goal is realised. I encourage other businesses to do the same.

There is a peace of mind in knowing that your loved ones are taken care of no matter what. It’s a level of security that I wish for more Kiwi families.

Originally published in The National Business Review.

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.


Making your claims experience easier

The claims process for life and health insurance is quite different to general insurance and it’s important to have realistic expectations about how long things will take.

Our claims team is set up to ensure that customers are supported and fully informed throughout the process with clear case management and accountability. We understand that our customers are contacting us at a difficult time in their lives and we want to do everything we can to make things easier for them.

We also want to pay claims as quickly as possible, in fact it’s easier for us to pay a claim than decline it. But the process can be complicated and there is essential documentation that we need to gather, which can take time.

Where we are most likely to experience delays is in getting medical information from third parties. You can help to speed up the process by keeping detailed medical and specialist notes, including referrals, together so you have access to them when you need them.

Early notification is key to helping the process along. The earlier you make contact with your insurer, the quicker things can get started. Disability Income claims are a good example. We can start providing proactive rehabilitation that allows clients to return to work sooner than expected. This can occur before a benefit payment is made.

If you have an adviser they can make the process much easier for you at claim time. If you give full consent when you lodge your claim, your adviser can manage the process on your behalf. Their understanding of the process can make a huge difference during a difficult time. They can also regularly review your insurance with you and help you understand exactly what you are covered for.

Here are my top tips to improve your claims process:

  • Notify us as quickly as possible so we can get started.
  • Talk to your adviser about the benefits of joint ownership on your life policy.
  • Keep copies of your medical notes and referrals.
  • Regularly review your policies and understand what you are covered for.
  • Build a relationship with an adviser to set up and manage your policies.
  • Understand that information gathering at time of claim can take time and we’re working as hard as we can to pay your claim.

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.

The role of insurance advisers

Insurance products are complex, which is why the service that insurance advisers provide is so valuable when you are considering what cover you need.

Advisers can assess your needs and decide which cover is right for you, help you complete your application, advocate on your behalf with insurance companies and assist you in making a claim. They can also reassess your needs over time as things change.

Here are some questions to ask when you’re selecting an adviser:

  1. What type of advice do you give?
  2. What insurance providers are you aligned with?
  3. Do the products you sell suit my needs?
  4. Can you advise on any products that I already have?

All advisers have a legal responsibility to act with care, diligence and skill. They must not mislead, deceive or confuse their clients. And they must be registered on the Financial Service Providers Register.

An adviser’s licence will set out the types of products and services they are able to offer. A Registered Financial Adviser is qualified to give advice on products like mortgages and insurance. They must be registered but they don’t need be authorised by the Financial Markets Authority.

Authorised Financial Advisers can advise on the same products as Registered Financial Advisers, as well as investment products, including Kiwisaver. All Authorised Financial Advisers must comply with a Code of Professional Conduct Code and need to meet minimum standards for competence, knowledge and skills, client care, ethical behaviour and ongoing professional training.

A Qualified Financial Entity Adviser can advise you on the same products as Authorised Financial Advisers if those products are provided by the company they represent.

Many advisers work on commission but some may charge a fee, depending on the complexity of your needs, so it’s a good idea to talk to them and make sure you know what’s expected. Insurance companies will pay them a percentage of your premium.

You can use our online tool to find an adviser near you:

Here is a video explaining the role of advisers


What is life insurance?

Life insurance takes care of your family, your health, your lifestyle and your future if you were to lose your income through death, illness or injury.

There are a few types of insurance that fall into the category of life insurance but they’re all a bit different.

Life insurance pays out a lump sum of money when the insured person dies or is diagnosed as terminally ill.

Income Protection looks after your biggest asset; your ability to earn. If you suffer from a long term illness, disability or loss of income that is not covered by ACC and are unable to work Income Protection can ensure money is still coming in.

Permanent Disablement cover pays you a lump sum if an accident or illness leaves you permanently disabled. This could be caused by either an accident or illness. You choose how to spend the money paid out to you. That could be the mortgage, looking after your children, getting access to the best medical care, or ensuring your business survives. It’s your choice.

Critical Illness Cover pays a lump sum of money if you’re diagnosed with a specific illness or condition listed on the insurance policy, giving you time to recover. This could be; a heart attack, stroke, cancer or conditions like multiple sclerosis. Some critical illness cover can pay out multiple times based on the severity of your condition.

So when do you need these types of insurance?

Consider where you’re at in life….

Are you the main income earner for your family, or do you live alone and rely on your income?  If so, Income Protection means you can keep receiving income even if you can’t work.

Permanent Disablement Cover and Critical Illness Insurance are good to consider at any age. Even though most of us think we will never have to make a claim in our lifetime for an illness like cancer, or for a back injury that leaves you unable to work, it can happen. These types of insurance give you financial security if life does throw you a curveball.

You can find out more about the life insurance products available from Sovereign here.