Most people, when discussing income protection for the first time, assume it automatically covers job loss (redundancy). It doesn't, and it's often not an option. Over the last 5-10 years, this has ebbed and flowed, with mortgage repayment having redundancy as an option, and some income protection too. Post Covid, most no longer have redundancy cover available.

The point I am making is things change, but this article is not about redundancy.

What I am talking about is a new product Asteron Life released in 2015, that is quite different to the normal income protection approach.

Fundamentally, it is good thinking at work. It provides claim solutions to clients and allows the insurance company to manage claim costs and, thus, premiums for the rest of the policyholders who want protection.

Some may say it is not income protection. On that, my test questions are: Does it pay a monthly benefit? And is that benefit dependent on not being able to work? Yes to both, it's income protection.

Partners Life have a Specific Conditions policy that sort of looks like income protection but it's not really, it's more like a trauma policy, event happens money gets paid. There is a limited test of work capacity for the claim, and most payments are based on events, not work capacity.

The reality is this particular product fits between income protection and trauma, as it covers more minor situations than a traditional trauma policy. But I get off track, I'll discuss this product in another post soon.

Back to the new income protection policy.

Let us start with what typically happens with a claim involving cognitive function issues.

This is most likely of a mental health nature. As I have written many times before, there is a lot in the mental health area when it comes to income protection. I am not going to rehash that here, but it is a perfect example of the type of claim Asteron Life’s new policy is aimed at.

Couple of things to keep in mind:

• A long-running stat on disability claims is about 40% of new claims are for mental health, and about 80% of long-term claims are too.
• income protection claims are contracted to return you to your pre-disability occupation. This is often called own occupation.
• Mental health claims often have a 'work' factor(s) contributing to the claim.

Those who are a quick study will see quickly the issue that traditional income protection has.

• You have a mental health issue that is driven by your work role, and you end up disabled.
• The income protection contract and, by extension, the insurance company and claim manager are obliged to get you back to your original occupation. 
• If the 'work' situation can be resolved, great! There are no barriers. Unfortunately, often, this is not the case, and the 'work' issue remains.

Which drives one of two claim outcomes:

Repeated claims where the claimant is rehabilitated back to work, until they fall over again, then the process is repeated.

• This is expensive, time consuming, incredibly challenging and just plain dumb.
• It is like banging your head against the wall, going nowhere fast except for pain and suffering.
• It also drives long-term permanent claims unnecessarily.

The second one is long term disablement, while not technically total permanent disability, it might as well be.

This is where the barriers to returning to work cannot be overcome, they do happen.

• You might say, so don't do that, send them somewhere else and get them to work.
• Yes a fair point, but one that is contractually difficult to do.
• Because the income protection policy is about returning the individual to their own occupation, this is how the insurance company operates.

If the client is medically determined to be totally permanently disabled (TPD) or if the client asks to go in another direction, then vocational retraining can be accessed.

• This is a client choice, not an insurer-enforced obligation.

In the TPD situation, the insurance company is likely to just pay the monthly claim, as they cannot drive the client to a new occupation.

The issue with existing income protection

• In these last two situations of TPD and occupation change, once the client is retrained and back working, the insurance company can turn the tap off.
• If they are able to complete more than 75% of the hours they worked before the claim, the insurance company can stop paying the claim.

The issue then becomes a financial one, as the new role may not pay at the same level as the one before the claim, leaving a shortfall and creating financial stress.

• So financially it makes no sense for the client to go into another occupation, this in itself is an issue, as the client is likely to be better off working in a role than not at all.
• This is about their general health and well-being, as well as the personal and family relationships around them.

This is where Asteron's new product comes in.

Its focus is on the client's well-being.

• It has been positioned to ensure you, the client, have a minimum level of income regardless of your disability and work role.
• It's less focused on returning you to your pre-disability role and more on financial support while returning you to the most appropriate role.

In practice, it will mean returning you to your pre-disability role as the first point of call.

For a couple of reasons:

1. in many claims returning to your previous role is appropriate, as it may be that you had a heart attack or an injury of some sort.
2. Your original role will also mean the insurance company has the least financial exposure. If you return to your role, they stop paying a claim.

Where the Asteron Life Workabilty policy differs is when returning the client to their original role would be either harmful or unsuitable for the client's situation.

• Rather than forcing the client into a pre-disability role, this policy allows the insurance company to support the client in a suitable, sustainable, and empowering work role.

Now I can hear people saying so they can make me stack shelves, well, yes, possibly.

• If it is a suitable role, through training, experience or education, but unlikely to be the approach.
• The reason the insurance company is not going to take this approach is they are insuring you will receive 75% of your income until retirement if you are disabled and go in a different direction.
• Because of this, Asteron will take the approach to move you in the direction of the highest-paying occupation you are suited to, not just get you back to any old job. It means less claim payments for them.

The levers of this policy are reasonable and focused

In the right direction for you, the client, both as a policyholder paying premiums and as a policyholder receiving claims.

What do I mean by that?

• This policy is structured to be focused on the right outcomes for you, the client; in the process, they should be able to minimise claim costs better than they do presently with the traditional approach.
• Add to that better claim cost management; the less pressure on premiums, the more sustainable the product is for you to hold on to. Better claims management should equal less premium increases.

Premiums will always go up, and you are getting older. What I am talking about here is the base premium should be more stable. Income protection average base premium increases typically sit around 5-9%.

• This isn't sustainable for policyholders.
• You'll either say it's too expensive and not take the cover, or you'll say it's too expensive and drop it.
• Better base premium management is a good thing.

As this is a new product it will have specific applications where it is very suitable, as too it will have applications where it is very much unsuitable.

If you want to explore the best income protection options for you, contact us to have a chat.