In honour of R U OK day we thought we might share some insight with you for Friday afternoon. The last few years has placed great strain on everyone and this has been especially pronounced in the healthcare system and the Doctors that work within it. Lets walk through how underwriters assess mental health when Doctors apply for Income Protection Insurance or other Life Insurance products.

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I was reading an article written by Dr John Cummins recently and thought to myself “Do my clients know that more than half of the insurance applications I do have some form of mental health disclosure?” is the stigma of mental health treatment as prevalent as it always was?
Let me make it clear that I am not medically trained and even though a did a couple of basic units of Psychology at University am am in no way qualified to understand the nuances of mental health conditions and their treatment.
I am however very experienced in how insurance underwriters assess risk and have taken a very keen interest in how mental health is assessed for many years now. This is very relevant to Doctors who, while their job may or may not be extremely demanding in a physical sense, often work under significant mental strain as they literally make life or death decisions on a daily basis and work in a very competitive environment.

Look after yourself first!!!

Occasionally I am asked “I’ve been thinking about seeing someone but I’m worried it will affect my insurance cover in the future”. I will respond to this in the same unequivocal manner every single time. If you feel like you are in poor health, physically or mentally, your ability to obtain insurance cover in the future should be the absolute last thing on your mind. Look after yourself first!!! The purpose of any type of Insurance is not to be profitable or a windfall. It is simply a safety net that protects you if something significant happens to you. The goal is always to live a healthy and productive life and no amount of cover is going to replace that. Early diagnosis and treatment of any condition decreases the likelihood this will become a significant problem that leads to any claim.

How do insurers assess mental health risk?

An insurance company operates under a pretty simple basis. They need to assess in advance how many claims they will have and ensure they have enough funding (clients paying premiums and return on capital pool) to meet this cost, with a reasonable profit margin. You can start with population risk (the probability that X number in 100 will get Y condition that would lead to a claim) and then create subsets based on each profession and age and gender. It might sound simple but there are gargantuan amounts of data that go into this process as the insurer is literally trying to predict the future. Ultimately, this is how the premiums are derived for “standard lives” that match the terms of the insurance contract in the PDS. The underwriting process assesses if the applicant is a standard life or if they are more risky. If it is determined that they are more risky the insurance can either add additional cost (known as a “loading”), exclude the specific condition or remove risk completely by declining cover entirely.

As medical professionals are trained to look for signs of ill health, mental or otherwise, and have easy access to diagnosis facilities they often go looking for things that most of the population would not even consider. This means they often have highly complex cases that need to be considered in the right context. As I said, I am not an underwriter and I am not medically trained. This is simply my interpretation of how an insurance company will assess risk the risk of a mental health claim in based on my own professional experience. I don’t get access to underwriting guidelines and databases but these themes are common.

1. There is no treatment without diagnosis

   If you are seeing a psychologist or taking medication prescribed to treat a condition it is assumed there is an underlying condition. Quite often a formal “diagnosis” has not been made but there is still a history of treatment this is where discretion and expertise comes in.
   Example: Workplace counselling is offered by your employer. You accept and have a few sessions with a psychologist and talk about your work and chat about your partner not packing the dishwasher correctly and you consequently yelling at them after a hard day. They discuss your support network and help you build your mental health toolkit. You wish each other well and off you go feeling better about getting a few things off your chest.

   Yes you have “ticked the box” that says you have seen a psychologist but does this mean you are a higher risk? Skilled underwriters look at each case and are always up for a discussion around context and often this is put aside.

2. Is this a reasonable reaction?

   If you have ever has the displeasure of losing a loved one or a relationship breakdown you will know that this isn’t something you shake off and head to work the next day fresh as a daisy. Reaching out for help from your GP or other avenues is not only reasonable but is a far healthier option than ignoring a problem until you are no longer able to function at all. The additional risk comes when there is no apparent external “trigger”. If you are seeking treatment with no know cause this could simply be a chemical imbalance or some other internal issue that means you appear to be higher risk than the population.

   Example: Your parent passes away unexpectedly and you take a couple weeks off work and see a psychologist for 6 months with no medication.

   This is clear trigger but the treatment is not a “one off” as it ran for 6 months. Typically speaking if this was more than 2 years ago its unlikely that an exclusion would apply.

3. Time frames and severity

   Was this condition a once off or has it occurred multiple times? Was this simply a low mood and a couple days off feeling stressed out or anxious? Do you need to seek professional help regularly?

   Example: You have been studying for years and even crammed for 9 months to study for your final exam. Half way through sitting the computer system crashes and they tell you all to go home and come back in 3 months for the next one. You’ve put your whole life on hold for this and you see your GP to discuss and they diagnose you with generalised anxiety and prescribe you with an antidepressant which you take for 6 months at low dosage. You pass your next exam and you’ve been a fellow now for 6 years with no further treatment.

   If it’s been some years since any treatment (5 as a guideline) and this was a short once off time frame, it’s unlikely that an exclusion would apply. The real discretion here is that even though the exam may appear as a trigger and the subsequent treatment a reasonable reaction reasonable this is actually related to the workplace which you operate and is not an external trigger as discussed in point 2 but more an inherent part of your job.

4. Is treatment effective and stable

   The brain is a very complex organ. It’s often very hard to say that one condition did or didn’t lead to another and stress and anxiety is the vast majority of cases that lead to an exclusion as the insurer simply doesn’t know what this might develop to so is assessed based on the first 3 points. However, there are some conditions that can be well treated as a chemical imbalance. ADHD for example can be well treated and with a long standing history showing this it has been possible to obtain cover for full cover for mental health conditions.

Results of an assessment

Once underwriting process is complete and the above points considered the insure will either issue a contract as “standard” or they will offer amended terms. It is very rare for an insurer to use a loading for mental health conditions but very common for them to exclude mental health claims entirely. Other than severe cases that might include suicide attempts or other significant risk factors it’s not often a case is fully declined based on a mental health issue alone.

As we specialise in providing advice on insurance for Doctors we take the time to carefully understand each case so we can frame a case for the insurance underwriter. If you are ticking boxes online or being sent to the insurer for a “tele-interview” it’s unlikely this will information will come to light until much later and this can slow the whole process down with a lot of back and forth. While we don’t relish the thought of discussing some of the hardest times in our clients lives this is relevant to your case and we are your advocate throughout this process. After all, when we set up insurance cover we are putting in a place a worst case scenario plan that, if done well, greatly reduces the burden at what may be one of the hardest times in your life.

The start of 2022 looks set to see insurance premiums keep rising as they have in previous years. Measures that began in March 2020 to stem losses have started to take effect but premiums are still increasing. I've been writing about this for years now, if you want to see the progression that got us here please check out the insights page and keep an eye out for Hyperlinks.

We are still in the midst of significant change with October 2022 being yet another, and potentially final, stage of APRAs intervention. If you didn’t catch the detail, insurers lost approx. 3.4 billion on Income protection in the 5 years prior to 2020, this was due to a combination of low interest rates, less advisers providing insurance advice and higher costs driven by claims and legislative compliance.

To address this, the regulator stepped in with the following broad guidelines for insurers:

• Insurers must ensure IP benefits do not exceed the policyholder’s income at the time of claim, and cease the sale of Agreed Value policies;

• Insurers must avoid offering IP policies with fixed terms and conditions of more than five years; and

• Insurers must ensure effective controls are in place to manage the risks associated with longer benefit periods.

Insurance is something that astute individuals recognise they are unlikely to claim on but are not yet in a position to self insure (you have enough invested to maintain your desired standard of living) so they have an insurer cover this risk for them. So unless you do actually make a claim it’s likely to be wasted money if you don’t count the intangible peace of mind it often gives us. For younger people just getting started in their careers the previous understanding that an insurer would be able to cost effectively cover you throughout your entire career appears to now be false. So for those of us who are considering getting cover or have it and are getting whacked with premiums increases next year, what are your options and how to you make the pieces fit your unique needs?

Background and disclosures

The vast majority of our clients are young Doctors that are generally in good health but usually have put themselves through a few investigations etc in the past (often out of curiosity) which makes the underwriting process tricky. Though we have been working in financial planning for many years we have spend the last half decade learning our client needs very well and refining our process and offering to suit our chosen clients exactly.

We spend a lot of time working with insurers, industry groups and even politicians to advocate for our clients. We strongly believe in fee for service as we want to ensure that we are only ever paid by the clients we advocate for and not product providers that simply produce the products that we use. This is not to say that we are at crossed purposes with insurers. They want to provide their clients with cover that protects them at a time they need it for a reasonable cost with a reasonable profit and so do we. If we acted against that common interest we would not be serving our clients. Although we do demonstrate the differences we prefer not to accept commissions or any other payments from any source. I think an insurer did give us a box of cherries for xmas last year though.

We offer holistic planning and seek out opportunities to reduce cost relentlessly. Insurance is often a key part of the planning process but we also consider investment goals over the medium and short term as part of this strategy. Most people have a finite surplus income so reducing insurance cover means more money to pay off non deductible debt and build an investment portfolio. Our goal is always to identify and solve problems. Insurance products, investment managers and superannuation funds are all simply the tools we use to solve problems. As these tools change we have to change the way we use them.

But what do I do about my premium doubling this year?!?!?!

Your adviser needs to match your insurance products with your needs. Prior to Sep 30th last year, Income Protection products were all very similar and other than a few minor differences you could probably not go too wrong just comparing based on price. Post October 1st you can no longer buy cover as generous as you previously could and insurers have taken a very diverse approach to APRAs guidelines to make these products sustainable. How these new products interplay with one another is still largely untested at this early stage.

Your adviser should help you work through these options and how they are relevant to you specifically but generally speaking here are a few options that reduce premiums:

• Waiting period

  Can you survive for 2 or even 3 months on your savings and sick/ long service leave? changing from a 30 to 90 day waiting period often reduces premium by approx. 30%.

• Benefit period

  Are you getting toward self insured? Reducing from an age 65 benefit reduces premiums significantly and this is the primary focus of recent premiums rises. This is something that should be used with caution as while reducing waiting period as above might have you lose a month or 2 benefit, reducing your waiting period could have you losing out on decades on benefit. Hence the focus of the premium rises.

• Bells and whistles

  Do you have day 1 accident cover or other premium features? Much like the waiting period above these might provide immediate benefits that were important when you started the policy and were living pay check to pay check but not now you have a good buffer account and can self insurer over the short term.

• Move from a Level to stepped premium

  This is a tough one as when you paid a level premium you essentially averaged your premium until age 65 etc. Stepped premiums increase as your age does while level does not. Both types are still subject to other factors that increase premiums and we are seeing the results of this now. If you have been paying a higher amount for years are you still below the stepped premium which will increase at a faster rate? or did you just start 2 years ago and have already had a doubled premium? Stepped in mid 30s is often half the premium of a level structure. Once you switch to stepped from level the benefit of that additional payment evaporates.

• Remove/rebate commissions

  This is uncommon for most advisers but something we do every other day at NOR. Most insurance policies come with an ongoing payment to your adviser of 10-30%. Some insurers allow you to remove or rebate this which decreased your premium accordingly. Of course you would need to then pay your adviser for service when you need/want it so you need to weigh this up. This varies by insurers and product type and depends on how it was set up. We favour this as we can reduce cost with no loss of benefit and one of the few “magic wands” we have at our disposal when we are trying to manage high premiums.

Lets make no mistake, clients don’t want to pay high premiums yet insurers have to make sure they have enough to pay claims. This means less investment in this space and blown out timeframes across the industry simple alterations can take months where previously we would see this take days. Clients and their advisers as well as insurers are feeling this pain right now and we are seeing lay offs and budgets tightening across all stakeholders. APRA had to intervene or risk collapse of an entire industry. This would mean bad outcomes for many who have invested in cover for years and may have health concerns that while not yet claimable may be in future and would lose cover completely. Insurers that don’t meet these new guidelines are fined significantly though some have chosen to be quite liberal in their interpretation. This could be considered as an attempt to increase market share but we expect a push and pull as IP products homogenise over the next few years. So, even though its hard to swallow, all we know is that if you have cover in place its more generous than anything available to replace it with, so what is that difference worth to you?

As a specialised adviser in this field I have always asked clients to reflect on what they really NEED. We aren’t looking to cover them for as much as is humanly possible, just enough to reasonably meet their needs in as many scenarios as possible. This varies by every person and changes over time. As advisers we are just here to help you hope for the best and plan for the worst, as the world at large and your situation changes we adjust our strategy to suit. The only thing we can ever be sure of is that we will do our best to work in your best interest.

The lead up to 30th September 2021 became a little manic for risk specialists such as myself. We had five times more client enquiries than any other month and had to push very hard to fulfil these requests, while still providing high quality advice. A key issue was that advisers were unsure what would happen with the release of new insurance products in October. The whispers we had suggested these products would be far inferior to those we had become comfortable with. So are the new type of contracts really that different?

There are a few major differences however how these will really work still remains to be seen. The big concern was that long term Income Protection claims would only be payable on an “Any Occupation” basis and age 65 benefit periods would be removed. It turns out that this is not actually the case for all insurers, some have come up with unique ways to manage stability that does not follow the previously published APRA guideline exactly. The final phase of APRA mandated changes come about in Oct 2022, when it’s planned that ‘Guaranteed renewable contracts’ will no longer be offered. From this point on, income and occupation can be assessed every 5 years and contract terms amended. Potentially to your detriment although you wont need to be medically assessed again. In the meantime contracts are being tweaked and modified as each insurer gets a look their competitors interpretation of APRA’s guidelines. Ultimately, nobody is printing their PDS right now, as they are being adapted and modified daily.

The big changes

• Age 65 benefit periods:

  All insurers have actually retained long term benefit periods such as “age 65” in at least one of their offerings. They are of course, adding details that may make this a hollow promise. These details need to be very carefully considered.

• Own occupation cover:
  This is the key way to manage long term claims. Initially, you would be assessed on your ability to do key duties of your job and also hours to match. After some time eg 2-5 years, many providers are opting to move to a “Suited occupation” definition. Though the term is slightly different this is essentially the “Any occupation” wording of the past. therefore the insurer would be able to assess if you were physically and mentally able to perform a job that you were reasonably suited for by education, training or experience. Does this mean that a neurosurgeon is suited to pushing a broom around a warehouse? Untested ground so far.

• Sick/ long service leave and other sources of income:

  Previously you (or your employer) could choose to use long service leave or sick leave during or before your claim commenced. Now, many insurers are saying you must take this first, before a claim can begin. Any income from investments or your business, is also considered and may reduce your payment, where previously this was often irrelevant.

• How much is covered?
  Previously your “pre disability income” was simply 75% of your indemnity amount across all insurers (some threw in an extra 10% for super). Now there is a vast difference, with some offers covering up to 90% for first 6 months and then potentially dropping down to 50% on longer term claims. How this is structured is usually an optional extra.

• Capability clause

  Every insurer bar one (PPS Mutual) has now applied a ‘capability clause’ of some sort. This clause means that if the insurer deems you medically able to return to work and be “off claim” they have the discretion to stop paying you. This is based on the opinion of your treating medical provider. Essentially this is designed to stop claimants intentionally lowering their income or hours to still meet claim requirements.

• Recovery, re-education and retraining

  Income protection was never designed to be a set and forget system, as you would need to show that you were attempting to recover and your treating doctor is required to sign off on your inability to work. There has been significant expansion of this wording, where insurers are looking to rehabilitate and get claimants back to work. While this certainly goes a long way to reduce costs to insurers and consequently reduce premiums. The mantra that “work is good for you” has become significantly more prevalent and insurers are working on programs such as ‘Best Doctors’, to get people back to work.

• Level premium structures

  With changing product types and sustainability in question, there was a lot of speculation regarding level premium structures still being offered. It does appear that a few insurers have opted for Stepped premium structures only, while others are offering both. As mentioned before we have not yet reached the October 2022 cut off. This among many other factors, may still change.

Risk advisers are now specialists

Income Protection options have never been so diverse. Up until now an adviser or broker had simply to compare a research rating usually produced by one of two providers (IRESS or Omnium) and then find the cheapest premium. Every now and then there might be a few features that were relevant to the client’s unique needs. However, ultimately this simple process was all that was required to demonstrate the advisor was working in their client’s best interest. Now there is a wide spectrum of options available to the client and the emphasis is on the adviser research the clients requirements fully and find a policy to suit those needs. This demands an excellent understanding of all risk products and how they work in conjunction with one another. Scoping advice just down to “how much insurance would you like” is increasingly risky as the adviser is bound to fulfil this duty.

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The Sky didn’t fall, you can still get good cover at a reasonable price

All factors considered, I do feel like the “sky is falling” mentality insurers happily played into during the lead up to October 1st, was largely unfounded. One could almost think that there was an element of marketing involved here.

Advisers, especially risk advisers, hate unknowns. These changes were touted as the most significant changes to insurance in Australia in the last 30 years. We were warned of far weaker Income Protection contracts, at higher prices. The industry at large became incredibly nervous and clients caught on to this.

At first glance it looks like some insurers have used a combination the ‘capability clause’ or a reduction of income test, to ensure that long term claims such as age 65 are still available. However there is more wiggle room for the insurer to reduce this over time and therefore manage the cost. It is also likely in the coming months that others with amend their offerings to reflect this unique interpretation and remain competitive.

Only time will tell if this all settles down. For now we still have little certainly. Premiums could potentially keep jumping and contracts may be further modified. Nevertheless the world continues to spin. Claims continue to be paid to people who need it. No matter what happens your adviser, if you have a good one, will be standing by your side through it all.