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Forward Thinking Magazine : August 2010
6 Macquarie Adviser Services Traditional ways of offering insurance also linked claims and payouts to the policyholder’s occupation and their ability to continue working, rather than the nature of the illness, and also did not recognise that illness is often progressive. So someone who suffered a treatable, stage one melanoma could receive the same payout as someone with advanced melanoma that had spread throughout the body. Pauline Blight-Johnston, Managing Director at RGA Reinsurance Company, says “Trauma insurance is often trauma bingo. Definitions are so broad you can get multi-million dollar payouts for conditions that don’t really affect the policyholder’s lifestyle.” “This also means that premiums for trauma insurance tend to be high, which makes it hard for people to afford the insurance they need, which contributes to the underinsurance problem. When people look at the price of the cover they tend to reduce the insured sum, but for some conditions it’s important to be fully covered.” James Louw, Head of Account Management at General Reinsurance Life Australia, agrees that traditional ways of structuring insurance have not necessarily been in the best interests of policyholders. He says, “In Australia definitions are very generous. Policyholders often receive a substantial payout for a minor event, which is not really the intention of the product.” According to Dr Phillips, “Another sticking point with old ways of offering insurance is multiple claims for different diseases. Many policies don’t allow policyholders to make a claim if, for example, they suffer a heart attack and are then involved in a car accident. This outcome was something that urgently needed review because in the event someone did suffer two tragedies in a row, the knowledge their insurance cover will assist them to be in a financially sound position is a great source of comfort at a time of great stress.” On top of this, previous industry-centric approaches to offering insurance made it very difficult for policyholders to understand what they were and were not covered for, with many policies replete with product related jargon and terminology. Many policies also suffer from a lack of transparency, with policyholders unsure about what they are and are not covered for. Often, says Dr Phillips, claims assessors and doctors have to make a subjective judgement about the severity of the trauma or illness, or the likelihood of the policyholder being able to return to work. This also causes consumers to have little trust in life insurance policies and the insurance sector. “T he crux of all this is that people haven’t been taking out the right insurance because they simply don’t understand it,” explains Dr Phillips. A new approach To tackle the issues that have been affecting the life insurance sector, a South African insurance firm, Discovery Life Insurance, was one of the first to pioneer a totally new way of offering life insurance. The approach was so successful that within a few years most of the large life insurance companies in South Africa began offering policies that mimicked Discovery’s policies. Macquarie Life Active’s policy has taken its lead from the South African experience.