Genetic Testing and your insurance application

Recent changes to when insurers can ask for applicants to disclose results of a genetic test took place on July 1 this year. One of our trusted Doctors asked me to illustrate what this all means and how it might affect their patients and even themselves if they were to change or reapply for cover. After having been though a government based screening program myself this is something I take a special interest in.

As of July 1 if you if you are applying for insurance benefits in excess of:

  • Life and TPD cover over $400,000

  • Trauma or Critical illness over $200,000

  • Income protection over $4,000pm

When completing an insurance application an insurer will ask any questions that they deem relevant in determining the “risk” of you making a claim so that they can price accordingly. This is the core purpose of underwriting as ensuring that only acceptable levels of risk are taken on board protects the “pool” of funds (premiums paid by policy holders) protects existing members from higher than expected claims which would increase their premiums in turn. Increases in premiums then often lead to higher “lapse” rates where people cancel or move their cover elsewhere.

Insurance premiums are based on not only population risk but also the claims and lapse experience of those insured under the “book” itself. As newer “books” are created healthy and younger clients “shop” for a lower premium and leave the book for better alternatives while those unable to move due to ill health etc have no choice but to stay. This creates a problem and managing this is a constant battle and predicting the future, sometimes 30+ years ahead, is very difficult indeed. So it is understandable that insurers would be interested in genetic information.

Disclosures

A common question used during an insurance application is “Have you had a genetic test or considering having one in future”. Like many questions in this litigious society we live in, this is very carefully worded. If you have had genetic test and are applying for cover over the limits you would naturally answer this question. However, what does “considering” mean? Does this mean if you have ever had a thought about swabbing your cheek and send it off to 23andME you need to disclose this? and then consequently you would be given unfavourable terms? Well…not really.

Forgoing the fact that 23andME doesn’t really look for specific faults rather increased probabilities based on general traits Insurers can not apply unfavourable terms for you being curious. If you are awaiting results they might postpone a decision until they get these back as a precaution. What they will ask is WHY? Historically people don’t get Genetic testing for no reason. Putting aside the specific genetic test question for a moment allows to focus on the broader picture. A good example of this is “catch all” questions. My personal favourite “have you ever experienced and pain strain or disorder of the back or neck”. My 2 year old said “daddy my neck hurts” the other day. Is this to say that she should get a C Spine exclusion, not at all. Follow up questions on this then determine context and therefore real risk. My personal belief is that nobody can answer no to this question. Any genetic conditions are interwoven with any past medical investigations and family history. When considered in the broader context a question about genetic testing is ultimately irrelevant.

An insurer can not ask for a genetic test, full stop. They can request, pathology such as an MBA20 if there is call for it due to high levels of cover or other risk factors but this is time consuming and expensive for the insurer so while this does happen regularly, is not routine. Section 21 of the Insurance Contracts Act requires the applicant to disclose every matter that they know, or could reasonably be expected to know, is relevant to an insurer's decision to enter into a contract of insurance with them. This is a fluid concept as, for example, a Geneticist might have a deeper understanding of their family history and the consequent risk factors than say an apprentice electrician. This is what is known as the “reasonable person” test.

Putting aside the specific genetic test question there are also “catch all” questions. My personal favourite “have you ever experienced and pain strain or disorder of the back or neck”. My 2 year old said “daddy my neck hurts” the other day. Is this to say that she should get a C Spine exclusion, not at all. Follow up questions on this then determine context and therefore real risk. My personal belief is that nobody can answer no to this question. Any genetic conditions are interwoven with any past medical investigations and family history.

Loading, exclusion or decline

If the insurer identifies an increased risk in terms of a genetic test they will increase cost, not cover that eventuality or not offer cover at all. A good rule of thumb here is the 3 strikes policy. If you had, for example, a loading based on family history of heart problems (whether or not you experience symptoms yourself) an exclusion to past a knee issue and then results of a genetic test which identified a fault in BRCA1 (with no personal or family history) this would be a third strike and a full decline. However, if you then undertook preventative measures such as a full hysterectomy and mastectomy this would bring you back in line with population risk and cover would be offered with only the heart loading and knee exclusion.

Practical Underwriting

Let’s be clear here, insurers need and want customers, this is their product and core business. They have massive amounts of historical data that helps them determine risk based on all kinds of factors. If for example you applied for $10,000pm of Income Protection and had no other factors other than a positive BRCA2 fault test that warrants a loading(let’s ignore that a family history would have been why you went for that test) some insurers would offer a loading over the full amount, some would offer it only on the amount over the $4,000 moratorium. Changing the application would likely not remove the “knowledge” of this risk to the insurer so you can’t simply apply for $10,000, get a bad decision based on genetic test, and then alter to $4,000 to work around. You can however “blind underwrite” or pre assess with multiple insurers. A good insurance adviser should be able to not only know which insurers are more favourable to certain conditions but also which questions to ask so an application can proceed smoothly. Just a quick plug for NoR, we pre assess all insurance applications.

Never let financial doubt stand in the way of your health

If you feel the need to seek medical treatment or investigations but are considering postponing this for an insurance application DON’T. Early diagnosis and treatment is in most cases the best chance you have at living a long and healthy life. The catch all questions above will catch you out anyway. Look after yourself, act honestly, you have a contract with an insurer that says they need to do the same. If you are declined or excluded you have other options and an adviser can help with this.

Disclaimer: The information in this article is general in nature and doesn’t take into account your personal circumstances so should not be relied upon as personalised advice.

Shaun Clements
End of 2019 Financial Year Checklist
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Get those deductions!

Have you had a great year and need a new laptop or could use some new uniforms etc? Every little bit helps but you have to prove this was a work related expense. The ATO has a handy app for just this purpose and makes the end of the year much easier if you use it regularly. Alternatively, occupation specific guides can be found here

A common example is the 5,000 km a year for car expenses. Unless you have a logbook, or a GoFar this could be difficult to prove. Find out what you are entitled for here  keep in mind that although it’s great to have deductions you should ask yourself if you are spending this money to grow your business or just for the deduction, which would be a waste.

Last but not least keep in mind the $30,000 instant asset write off for business owners. This could be a very handy way to get that new equipment for work but don go rushing out and buying a new car before checking with your accountant to see if you are eligible.

 

Make your super contributions

Don’t bang on the door of your super fund at 4pm on the 28th with a sock full of 5 cent coins, you will have missed the cut off date. Contributions for employees can be done through your accounting software or via internet banking and you should considering getting this done today.

If you are self-employed don’t forget you can pay $25,000 to super this year and claim it as a deduction but be careful that another employer or someone you contracted to has not made a payment on your behalf as exceeding your cap could be costly. It is also worth considering making a non-deductible Superannuation contribution to get access to the Govt Co-Contribution if you or our spouse have earned under $36,813 this year.

As of 2019 you are able to carry forward your contributions cap from above to next year, for 5 years. So if you are expecting to earn significantly more next year, or have a capital gain on the horizon, it might be worth while holding off on maxing out your contribution for the year.

Call us or your Super fund to see what payments have been made and top up your retirement savings in the most effective way possible.  

 

Consolidate

If you are stashing cash in an offset account to be used for tax or business purposes make sure you move it back across to your company account so your books show true value on 1 July. Try and get your bills paid ASAP and hopefully those who owe you money will do the same, maybe nudge them a little, so you know exactly where you stand this year.

 

Update your details on myGov

MyGov is becoming the primary point of contact for the government and the taxpayer. You can link the ATO and dept of human services portals to your account and off you go. Make sure you update you details if you are planning on using child care facilities next year. MyGov are also taking direct reports from your health insurer so that will make life a bit easier this year.

 

Review your insurances

Now you have spent the time looking at your financial position you can compare this to your current insurance cover. Whether it be life and income protection, public liability, fire and theft or cyber insurance you can be sure this will change over time so be sure it matches your current situation.

 

Back up your data!

If you are still carrying a tape drive with this weeks back up on it...maybe it’s time to get on the cloud. Cloud storage is very affordable and easy to use. If you are with MS Office 365 they will include a terabyte of storage with your license fee and other options such as Dropbox or Google Drive are equally affordable. If you do this right, losing a laptop or mobile should be no more stress than replacing the hardware, connecting to the internet and watching the progress bar as everything is put right back where you left it.

 

Look to the future

So you had a great year, is it time to expand or to withdraw a little? Markets and customers change all the time so make sure you remain relevant and provide those customers with the service they value the most.

Has your success been in large part to any key employees? Finding good people is one of the hardest parts of any business so make sure you let them know you couldn’t have done it without them (a little bit of recognition goes a long way).

Last but not least, how is your work life balance? Did you flog yourself this year at the expense of your health and family? Do the kids think you are just someone who lives in the house from time to time? Handing the reins over can be tough but as they say, nobody sitting on their death bed wishes they had spent more time at the office. Success is not always just financial, a person earning $80,000 a year who can sit on a beach any day of the week without a care in the world could be considered far more successful than someone earning $200,000 working 70 hrs a week on the fast track to their first divorce and heart attack.

 

We are here to help!

These are some ideas to point you in the right direction, but everyone’s situation is different. NoR Financial and its network of professionals can help you to address each and every one of these issues and get you on track to ensure that end of financial year is a time for reflection and forward planning, not a mad scramble to get things done before June 30.

 

Shaun Clements
Is this game over for default Insurance under Superannuation?

The Federal Governments new “Protecting your Super” Package (PYS) comes into play from July 1st 2019. As this time draws closer we are seeing a rapid changing of pricing for default insurance cover and the terms and conditions that define what and when the insured person can claim. So why is this happening and what do you need to know?

We take great efforts to ensure that we aware of all superannuation funds that our clients have in place but even for professionals like us this can be a cumbersome process. Many of our clients have intentionally kept superannuation funds open for one reason or another and are now at risk of losing these due to not only this legislation but the consequences of this and market forces that dictate insurance premiums.

What is PYS trying to achieve?

  • The removal of exit fees on all superannuation accounts;

  • A 3% cap on all administration and investment fees for balances below $6,000;

  • Consolidation of low balance inactive accounts via the Australian Taxation Office (ATO); and

  • The removal of insurance cover from inactive accounts, unless the member specifically requests the Trustee keep this in place.

No high fees and removing insurance cover we don’t need. How could this be a bad thing? Well on the surface this is a great sentiment. Many Australians lose track of superannuation and this slowly gets eaten by fees or insurance premiums. Protecting Your Super is designed to solve this problem and will likely do so well.

The reality is never so simple.

The majority of Australians are not engaged with Superannuation until they need to be. The 2 primary triggers for this are when they come close to retiring or need to make a claim on insurance cover.

Having multiple funds paying multiple fees is not an effective way to build retirement savings in many cases but some funds have benefits that many are not aware of. These will be lost. Fortunately there are a few funds such as GESB, WA’s largest fund, that are not required to impose these changes on its members.

Any adviser that handles claims on a regular basis knows that many clients that find themselves shocked by life changing news are often very relieved to find they have multiple superannuation funds with default insurance cover in each. This often pays off a mortgage or allows a non working widow funds to look after children etc etc.

Sure if you are under 25 and have no dependants it is likely you don’t need this cover and the premium will diminish your retirement savings. The Government’s reasoning for this must be sound….not really in my opinion. Insurance at its very core is designed to share the cost of a claim across its policy holders. Sure premiums go up as you get older (or insured amounts decrease in most industry funds) but ultimately the younger and healthier members pay for the older members who are more likely to claim. This old knowledge is changing fast and many are getting caught out.

So when did insurance become so expensive?

Well this is actually a very complex problem but we will try and boil it down. Firstly, people are realising they actually have cover. MyGov and all kinds of handy search tools are helping Australians to realise they have multiple super funds. No win no fee lawyers spend great time and expense making claims on default insurance cover under these multiple funds that the client was likely unaware they could even claim on. Add this to the rise of mental health claims fast overtaking back and musculo-skeletal claims you have Income protection policies having a far higher rate of claims than ever before.

The second part of the picture really has nothing to do with insurance. An insurer is required by law to hold funds required to pay all claims in a statutory fund. As this fund needs to be liquid they are restricted in that they can not invest in long term, higher performing assets and need to invest in highly liquid assets with low probability of a loss. In simple terms this means they need to use term deposits and cash not shares and direct property like your Superannuation or investment fund might. If you have been paying attention you will know that interest rates, and therefore term deposit rates have been very low for quite some time.

So, more claims being paid and less money being earned on savings. Australian insurers have been making a loss on income protection for almost half decade due to this trend. There are gains from life and TPD insurance, often held at the same time, that have been offsetting this as people are actually living longer and better treatments are extending average working age.

why have default cover premiums not increased until now?

When you enter into an insurance contract, through an adviser like us, you are highly likely getting a “Guaranteed renewable” contract. This means that, as long as you continue to pay the premium, the insurer can not cancel your insurance or amend terms to your detriment. They can increase price but are careful about this as premium increases, like we have seen over past 2-3 years, lead to high cancellation rates or people moving to competitors who may have a less risky (younger) pool of clients and can offer a lower price.

Your default insurance cover is provided by an insurer to your superannuation fund. You do not hold a contract with the insurer and the Super fund reserves the right to alter this cover as it sees best fit for all of its members. The fund trustee will negotiate with an insurer on behalf of all of their members and this tender process can even be more than twice a year.

Industry Super is a highly competitive market made up primarily of lower balance members with low financial literacy. When one fund offers covers of $100,000 of TPD cover for $2pm and the other for $10pm which fund do you think people will switch to. This was especially prevalent with Australian Super raising premiums a few years ago and facing high backlash for doing so. Then in a miracle negotiation that they publicised here (please note that The New Daily is owned by Australian Super so this might not be an entirely impartial article) they slashed premiums. How did they do this? Well the simply reduced premiums and altered the terms of the contract to the point where far few people could claim on it. Simple.

To add to this we hear of a curious tale (during the second week of June 2019 as this is being written) where a super fund has written to all of its members asking them to “Opt in” which renews their insurance cover. A smart cookie noticed that the wording said that the new policy began on X date, in 2019. For a client that has had cancer, which was treated and not claimable in 2017, they would have been covered for death, TPD and IP if this cancer were to lead to claim in future. Now this diagnosis pre dates the policy start date and is now a “pre existing condition” which is not covered. Most of these communications are sent by mail. Some might argue that this is good practice as it is harder to miss in the many emails we get but it also helps that once you sign and return this letter you no longer have copy. If you know what we are talking about we would love a copy of this letter so please send one to us to confirm this. We would love to name and shame but we have not confirmed this to date.

So what can you do?

When all is said and done we live in a post royal commission world that has insurers closing their doors and selling out by the day, premiums go up and policy conditions are lengthy and confusing. There are codes of practices that are improving the good faith of insurers but there is still the commercial reality that insurers are not charities and can not pay out more than they make. Without this sounding like a shameless plug you need a good adviser that knows what they are doing and wont let you fall through these cracks, she'll be right mate just doesn’t cut it these days.

As always this blog is general advice only and you should not act on anything without consulting a professional. Many articles have been written on this over last few weeks including this in The West and another on ABC

Shaun Clements