The British income protection (IP) market should learn from some of the mistakes made by the Australian market in recent years, Gen Re has said.
Speaking at the reinsurer's annual conference, Claire Henshall, claims manager at Gen Re said Australian IP could be described as "dangerous products."
Henshall said there was an unprecedented surge in Australian IP payments in recent years, as more people were classed as long-term sick. The majority of employees cited depression as the reason for absence.
She said: "So what happened in this market, what went wrong? What dangerous thing came out of this market? Basically inceptions increased and terminations decreased. They had more claims and they were going on for a lot longer than [insurers] were expecting. It wasn't unique to particular companies it went across the market.
"It started to go wrong around 2009. People were asking whether this was a result of the recession. [Were more people claiming] because jobs were insecure or they couldn't find work? Although these cases had a little peak upwards [in 2009], there were probably other factors at work. Where the recession did have some effect was where companies started using disability insurance instead of redundancy."
Henshall explained that Australian product features made it easy for people to claim, for instance, the definition of own occupation meant that employees who were unable to perform just one "income producing" element of their own occupation could submit a claim. Claimants were also solely assessed by their own GPs and not subject to additional assessments by third party medical professionals.
In addition, due to low thresholds over ‘proof of income' and additional ‘booster' benefits payable, there were few incentives for employees claiming as much as 20% of their highest earnings in a three year period, to return to work.
She also said a key lesson to take on board was Australian insurers needed to invest in claims management, as effective early intervention and better data analysis were needed.
Henshall asked: "Are our [UK] products well-designed and not storing up problems for the future?"
She concluded the British IP market needs to be innovative and attractive to customers without compromising risk.
