Like Death, Only WorseLike Death, Only Worse

Russell HutchinsonRussell Hutchinson

DirectorDirectorChatswood Consulting LimitedChatswood Consulting Limited

TPDTPD

Agenda

• Overview• Claims Examples• Main Issues• Risks• Future

Scenario OneScenario One

The Classic TPD Case

Jim was involved in a motor vehicle accident and injured his right arm and leg.

The arm was fractured in the accident and the damage is permanent.

Reduced mobility due to permanent damage to his leg also affects his ability to ever work as a mechanic again.

Scenario TwoScenario Two

Sales representative Dina, aged 22. Starting a career as a company sales-person. Excited about getting her first new car – a company car! Married, with a young child, and a working partner – but many expenses and the dream of owning a home.  Diagnosed as having Multiple Sclerosis (MS) when she began feeling extremely tired.

Scenario ThreeScenario Three

Kay Hutchinson Stroke at age 61 meant that she would never work again. Expected to die, but survived, and various home alterations were required.  In fact the family moved, and built a new house, in order to support her better.

How Likely is TPD?How Likely is TPD?

Will Anyone Ever Claim?

AMP data says you are 50% more likely to suffer TPD during working life than to die QPR data from Peter Davies is based on a different methodology but estimates the risk of TPD for one person out of a couple at 9% between age 18 and 65 Only 19% of working age New Zealanders with children have TPD cover

Many more buy lotto tickets

How Much Should I Buy? Pt 1How Much Should I Buy? Pt 1

What is the right measure?

To preserve consumption at greater than 80% of pre-disability the FSC reckon there is a shortfall of $350 billion Households with a non-working adult are particularly at risk – the non-working partner is often underinsured because of models based on “income.” Typically a family needed to insure the primary income earner with $320,000 of TPD. (FSC data). 

How Much Should I Buy? Pt 2How Much Should I Buy? Pt 2

How Long Must the Money Last?

Of course, after a TPD life expectancy declines. We don’t have a general figure, but for spinal cord injuries the results were:

For those whose injury occurred after age 40, 25% will die within 18 months of the event

For a 45-year old, life expectancy thereafter was 78% of what might otherwise have been expected  Whatever we think of that number, let’s put it to one side right now – and return to it in a couple of minutes.

How Much Did They Buy?How Much Did They Buy?

Use and Sums Insured are Low

Assuming a family was part of the estimated 19% that own TPD cover, what did they buy? Families with primary school children, according to FSC data, bought around $190,000 of TPD – when they had the cover at all.  Families with teenage kids were even worse, with cover of about $100,000.

TPD Recent HistoryTPD Recent History

A Timeline

30 years ago – much more common as a rider on life than it is today. 20 years ago – shift to own occupations gathered pace. 5 years ago – addition of partial benefits becoming much more common.

Problems With TPDProblems With TPD

A Lack of Trust

Australian experience – increasing claims for mental health as a cause of TPD Doubt and confusion - especially with income protection. The Association of British Insurers found that 55% of TPD claims in 2009 were declined, mainly for this reason In NZ in 2009 there was TPD premium of a little under $40million, and claims of a little under $17million Perception of duplication: either with ACC or with parts of Trauma and Income Protection

The Place of TPD in the Risk PlanThe Place of TPD in the Risk Plan

Your Turn to Work It Out!

Jack and Mabel – how much TPD should they have?  a)If they have no income protectionb)If they have income protection Hand outs are going around. Please assume they have life and trauma cover.

TPD Rating Issues Pt 1TPD Rating Issues Pt 1

TPD Rating Issues Pt 2TPD Rating Issues Pt 2

Main Benefit Variations

•Do not use most recent own occupation if not in employment for 12 months

•Must not work in any occupation for first 3 months

•No cognitive-based criterion

•Not paid in the last three or six months of the policy

•Penalty for not waiving the 3 month wait for at least 10 conditions

•Requirement to first manifest after policy starts

•Six month wait

TPD Rating Issues Pt 3TPD Rating Issues Pt 3

Partial Benefit Variations

•Three banks and one direct insurer have no partial benefit

•Three companies exclude class four lives

•Two companies limit payment to 10% of the sum insured

•The others will pay 25% of the sum insured

ConclusionConclusion

Just Buy It!

TPD is valuable cover, increasingly likely to pay out, not less likely

•partial payments have made it far more ‘usable’ •social changes may make claims even easier General strategy: cover many contingencies for lower amounts when confronted with a budget limit Planning mix: over to you, but please have a strategy

So, What Next?So, What Next?

Playing with Risk

Understanding risks in groups - we have talked about TPD for individuals, but in each of the scenarios we gave a company lost a valuable person.  Reminder: – to qualify for your education credits you need to answer some questions.  Thank you – and please connect at www.chatswood.co.nz and on LinkedIn