Key Findings From the Gen Re New Zealand Disability Survey
Gen Re has been collecting data on disability income policies individually written in New Zealand since 1994. The latest study covers claims experience from 2008 to 2012, collected from 11 companies and representing around 90% of the disability income protection market by in force premium.
We studied incidence rates and claims termination rates as well as payment ratios from benefit offsets. The results were presented to the Society of Actuaries in New Zealand in November, 2014.
We are seeing a downward trend in incidence rates over the investigation period, especially among females. This was less obvious when we looked at the trend over a longer period of time (since the first study in 1994). The incidence rate among males has remained similar for the last ten years.
The overall termination rates have remained roughly steady. However, claims with durations longer than three years are being terminated at much slower rates, thus resulting in unfavourable experience.
Termination experience varies markedly by cause of claim, with mental illness claims terminating at two-thirds of the overall rate. Claims that resulted from accidents, on average, terminated faster than claims from sicknesses.
The New Zealand government started the Accident Compensation Corporation (ACC) in 1974. ACC is a no-fault personal accident compensation scheme covering all types of accidents and providing among other benefits an income benefit up to 80% of an employee’s pre-accident earnings. Any claim lodged with insurance companies may be offset by the amount of ACC benefits received. However, the level of offset from ACC has reduced over time, hence increasing claim cost.
On balance, the claim cost of disability income products has increased.
Here are some other interesting findings of the study:
- Larger policies have less successful experience. People with larger sums insured are more likely to claim and less likely to terminate once they are on claim.
- Experience also shows significantly higher claim cost for longer benefit periods. Longer benefit periods have higher incidence rates and lower termination rates.
- Lower incidence rates are seen in the first few policy years, supporting either or both a selection effect or a selective lapsation effect.
- The top five causes of disability claims are accidents, mental illness, cancers, circulatory and musculoskeletal conditions. These causes account for 83% of all claims.
Gen Re provides detailed feedback to participating companies, providing valuable insights into the evolving Disability Income experience in New Zealand and thus helping the industry to better manage this risk. This survey not only helps to price the product more accurately going forward but also to channel claims management resources where it is needed most.