Insurance products featuring 'own occupation' permanent, total disability benefits could be exposin...
Insurance products featuring 'own occupation' permanent, total disability benefits could be exposing insurers to too much risk according to GeneralCologne Re.
Speaking at the Disability Insurance Forum, Ross Ainslie, product actuary at GeneralCologne Re, warned that own occupation on critical illness policies presents a particular problem.
He said the difficulty stems from a lack of adequate data on which pricing can be based.
"Our best experience of own occupation products has been on income protection which has been loss-making in difficult conditions. We have had few PTD claims and we are not sure how these might stack up if there is an economic downturn, for example," he said.
He raised particular concern about some providers offering own occupation PTD to those in specialist occupations.
He said: "Some companies have been offering own occupation PTD to surgeons and dentists and it does not take too much to make them unable to work. They are accepting high risk occupations on a high risk product."
This was most worrying in the keyperson market where clients are increasingly demanding higher cover levels with cover for £5m now being requested on a regular basis.
"Stress and depression are now entering the equation more and we have not faced these types of difficult claims before on PTD," Ainslie said.
He added that the situation had resulted from demands from the IFA market and in a bid to hold market share, providers have responded without fully understanding the implications.
"This is what IFAs have been demanding so it is what providers are offering. Direct sales forces probably would not do this."
In addition to own occupation PTD, Ainslie said that current income protection products had a range of high risk features.
He said these include a reduced number of exclusions, over-generous benefit formula and generous insurability options combined with increasing price competitiveness and uncertainty in pricing.
"All of these features increase the insurer's risk so they need to think carefully over what they will mean for claims in the future. Insurers are still creating high expectations in the sales message and with more competition they are tempted to cut prices without the necessary data to back up the decision."
