THE spike in insurance claims last year highlighted the importance of income protection, said life insurer FMI, a division of Bidvest Life.
According to FMI, last year brought the highest number of claims in its 26-year history, with claim volumes increasing by 17 percent compared to the previous year due to a sharp increase in temporary income protection claims related to Covid-19.
Presenting FMI’s 2020 Claims Report this week, FMI’s chief product actuary Leza Wells said minor infections were the leading reasons for the claims, accounting for 31.2 percent of all income protection claims paid in 2020.
“Most of these were due to Covid-19 infections and complications. Mental health claims, largely due to anxiety, burnout and depression, accounted for 3.5 percent of all claims, and was the second-most common reason for claiming on income protection," said Wells.
Wells said 87 percent of all claims paid in 2020 were for Income Protection benefits. In all, 7 percent of claims were for ancillary benefits such as retrenchment cover, 3 percent were for critical illness and life cover claims and fewer than 1 percent were for lump sum disability claims.
She said that the Covid-19 pandemic has had a major impact on the life insurance industry, with significant increases in claims for income protection, retrenchment, death and funeral claims.
“While we saw a higher than usual number of income protection claims, our exposure to the virus was limited because we have a newer book with younger ages that have been underwritten more recently. There were limited claims on our critical illness lump sum and life insurance benefits,” said Wells.
“What the pandemic continues to show us is that Income Protection remains the most effective insurance against the risk of injury or illness. Minor infection claims due to Covid-19 accounted for almost a third of our income protection payouts in 2020 – and we believe this allowed our policyholders to continue providing for their dependants and employees during a highly unusual year which presented many financial challenges.”
FMI said that it paid 92 percent of all claims made last year. Of the 8 percent of claims that were not paid, the leading cause of non-payment was that clients tried to claim under their income protection policies while still within their waiting period. In income protection terms, the waiting period is the number of days a policyholder must be sick or unable to work before a claim will start paying.
According to the Claims Report, 40 percent of claims lasted less than 30 days, with an average duration of 18 days for Covid claims. Claimants with a seven-day waiting period accounted for 86 percent of Covid claims. However, 64 percent of income protection policies sold had a waiting period of 30 days or longer. “This has highlighted the need for consumer education around concepts such as waiting periods to ensure that clients understand and select products that suit their needs,” said Wells.
FMI said it was important to note that only two of the top 10 claim causes for income protection were for conditions that would likely have resulted in a lump sum payout. Wells said that fewer than 1 percent of claims were paid on lump sum disability – which showed that there were a number of injuries and illnesses that impact the ability to work that would not result in a claim on critical illness or lump sum disability cover.
Despite this, the majority of policies sold in the industry during last year did not include income protection. Lump sum benefits dominated sales in the life insurance market, with life cover representing 61 percent of new sales. Lump sum disability and critical illness sales accounted for a further 32 percent, while income protection draws the short straw, with only 7 percent of sales.
Wells said that at FMI, they had always believed that income protection cover should be the foundation of one's financial plan. “Your monthly income pays for your short-term insurance, medical aid, lump sum cover, your savings and retirement plan. Even a short-term interruption in your income due to injury or illness places your entire financial plan at risk. For us, financial planning should start by asking: ‘How will I provide for myself and my dependants if I get ill or injured and I can’t work?"' said Wells.
The Council for Medical Schemes (CMS) 2020/21 Industry Report released this week showed that the industry saw Covid-19 claims to the overall value of R10.1 billion in the past year.
The recent CMS Industry Report reveals the impact the Covid-19 pandemic had on the medical schemes industry. According to it, 422 894 members of medical schemes were infected with Covid-19 in 2020 and out of that number, 383 585 recovered. This represented a mortality rate of 3.02 percent. These numbers were based on data from 73 schemes, representing 99.84 percent of medical scheme beneficiaries.
BUSINESS REPORT ONLINE