In its submission to the Life Code Review, the Financial Advice Association of Australia (FAAA) said the code is important for life insurance consumers and highlighted what it believes are the three most important issues for advisers and their clients.
Right at the top of the list is the hot topic of mental health exclusions, which have seen life insurers respond to the exploding cost of mental health TPD claims with carve outs.
“The application of broad mental health exclusions, where there are no grounds for these exclusions, is not consistent with transparency and fairness,” the FAAA said in its submission.
“For example, exclusions for nervous system diseases and disorders should be more specific rather than addressing a very broad group of diseases and disorders. We are also concerned about the evident strategy to apply a mental health exclusion because of very limited prior history, including reference to counselling of any form.”
The crux of the issue, according to the FAAA, is that mental health exclusions need to be more specific in terms of individual underwriting outcomes.
Importantly, the submission said there is room to protect both the client and the insurer.
“A client who has a history of anxiety, depression or stress that has had no to minimal impact on their ability to work and participate in society, should not be given an exclusion that excludes them from claiming on an event with no correlation or prior history such as PTSD nervous system disorders or cognitive disorders, particularly those that often have unrelated causes such as brain injuries or infections,” it said.
“Where broad exclusions are offered due to the possibility/risk of occurrence, then a statement should be included to the life insured when offering terms of cover with a mental health exclusion that if medical opinion can confirm that there is a lack of causation between past history and the event giving rise to a claim, then a claim could be considered.”
This would provide protection for periods of stress leading to a mental health exclusion, the submission said, followed by a later incident that occurs later on.
“Solutions such as limited benefit periods could be considered and utilised as an alternative to a broad-based exclusion or the exclusion wording should be required to be individually tailored or at least grouped into a more closely related set of conditions,” the FAAA said.
“We are also concerned by the evident tendency to apply a mental health exclusion simply as a result of prior history, including reference to counselling of some form.
“A referral for counselling should not be grounds for a blanket exclusion of mental health cover.”
According to the submission, some insurers apply a mental health exclusion “where they are of the view that there is a potential for symptoms to occur, despite no history of symptoms being evident for the life insured”.
“Australians should not be prevented from having discussions with their GP about issues that are concerning them, that have limited broader implications,” it added.
Premium issues
The FAAA also pointed to significant increases in premiums and upfront discounting as being major issues.
“Over recent years, life insurance consumers in Australia have been subject to very significant premium increases on their life insurance policies,” it said.
“This has involved repeated double digit increases, which in many cases will mean that they are paying nearly double what they were paying just a few years ago. Life insurance is already a product where age factors result in regular premium increases.
“On top of this, large pricing increases can have a substantial impact on the budgets of Australians. Such large premium increases can put pressure on clients, particularly if they have other financial challenges at that time.”
The issue of premium discounting has seen life insurers providing significant upfront discounts for new clients in the short-term, before then moving to a higher cost in subsequent years.
“The consequences of this are that it is often in the interests of clients to seek new cover on a regular basis to access these discounts, provided that their health has not deteriorated in the meantime,” the FAAA said.
“It is our view that this is a very problematic practice, which can work to the disadvantage of existing clients who remain in their existing policies. Whilst the Code does not currently address pricing issues, this might be an area that the review could consider.”
