New approach needed to income protection: Whitepaper

Remarking on the whitepaper, Income protection and the economic cycle, ClearView said it reflects on the significant deterioration in the product’s growth and claims experience in recent years, despite the fundamental societal need for income protection insurance.

According to the paper’s author, ClearView chief actuary and risk officer Greg Martin, demand for income protection should be unshakably strong given it protects what is arguably a person’s most valuable asset; their ability to earn money throughout their working life.

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He cited the effects of cyclical trends in underemployment (as opposed to headline unemployment) and slow wages growth as key factors behind the decline of income protection.

“It’s too simplistic to blame heightened media and regulatory scrutiny of the financial services industry, mounting mental health-related claims and recent price instability for the discontentment of both consumers and insurers. Focusing on these factors alone won’t properly address the issue,” Mr Martin said.

Mr Martin pointed to headlines that heralded Australia’s almost 30 years of uninterrupted economic growth and prosperity, which he said painted a rosier picture than what the average worker was actually experiencing.

“Income protection claims follow economic cycles, with poor economic circumstances driving increased claims. The industry’s claims experience reflects the underlying reality rather than the headlines,” he said.

“On top of this, the long period of weak wages growth has resulted in many indexed insured benefit amounts exceeding policyholders’ actual income ratios, meaning the insured benefits are providing increasing income replacement ratios. Higher income replacement ratios also result in higher claims rates so there’s a double impact.”