[UPDATED] Partners Life changes to shake the market

It was signalled, and they have clearly moved quickly.

This is going to result in two things, a significantly lower inflow of self-employed business and those that can get cover having substantially worse options about managing their affordability of cover into the future.

Other providers manage the self-employed risk in different ways that are not nearly as draconian and are clearly more sustainable given that they too have had their challenges that they have responded to.

Regarding selling on price, no, that's missed the point.

When the product is heavily restricted and removes benefits for the policyholder, the policy has a lower value for the premium paid.

Sorry, I'm not as green as I am cabbage looking.

@JPHale I haven't seen any company move yet in relation to changing their policy when it comes to DI product, Fidelity recently actually announced a rising claims amount on unexpected DI products. I think it's bold but perhaps more of a signal where insurers are going. Especially given the recent GenRe whitepaper highlighting over $3b worth of losses. I'm assuming given the majority of insurers are backstopped by global reinsurers it might be a matter of jumping before being pushed.
As for your comment on price and the removal of benefits, when I inquired about this I was told guaranteed wordings apply so I'm assuming the in-force book is unaffected by wording changes?

I look forward to what other Companies do, they must be sufferring the same claims as Partners, after all we all fish in the same small pond with the same equipment.
Every employed person will be thanking Partners for not making them subsidise the self-employed.

A couple of things to consider here really.

FIrstly @JPHale - yep you're right. AIA (well a red Sovereign isn't it really) manage self employed risk by having different premiums for them - isn't that a novel idea... when quoting with them we've always had to note if they're self employed and for how long. So I'd hope they at least will keep the same moving forward.

My second point is this. And it will no doubt get some kickback but discussion and debate isn't a bad thing:

There are a number of principles of insurance - utmost good faith, subrogation (a bit more in GI than risk), and of course indemnity.... so this means putting someone back in the financial position they were in immediately prior to an event. The over insurance Naomi talks about is quite right. Especially when as advisers we sell MRC and top up with IP so our clients get ACC and MRC if they have an accident. This is clearly betterment - but also as we can do it we should do it.

I think we'll start to see insurers move away from allowing this - and whilst it will be bad for the client it does actually make sense.

Surely this cannot come as a surprise? After all, it's a start-up insurer that now has a maturing claims book...

@baybroker - Self employed pricing is a novel idea indeed. But unfortunately the horse has bolted. Partners use one rates table for in force and existing policies, applying a premium increase to self employed people seems like a simple solution, however I believe the problem is far more complex. If the premiums were to be hiked for self-employed people the problem would worsen. People with good health can change providers no problem, meaning all that is left is an unhealthy self employed book further worsening claims experience.

What I do think is interesting and perhaps understated is the claims calculation for the indemnity. Reducing the window of financials from 3 years to the previous 1 makes it quite difficult to ever accurately measure how much someone should be insured for. What I mean by this is, from experience, when self employed people are falling ill they will do anything they can to keep the business running (reduce hours, not take on additional jobs etc). Meaning the 12 months prior to disablement often looks worse than what their potential earnings normally are. I imagine, if there are a load of clients over-insured at claim time this will cause a bit of stir.

Either way, the Australian market looks quite grim and I'm glad this is the only change they made.

@Concerned1 Premium pressure has always been an issue with all disability books, that's why they increase premiums every year.

Also too, my comments were about new cover going forward not the existing covers, aka the cabbage looking comment.

@Tash you assume that is the case, the risk is the risk and the claims are the claims.

Many self-employed are both underinsured for the risk and the cover is priced based on the various factors, to suggest employees subsidise self-employed is to demonstrate a lack of product pricing understanding.

Partners have been able to distinguish benefit employment status in their system from day one, they choose to price for SE in the way they have on purpose. Just like they priced the MRI and HHE covers on indemnity rates initially, this is cover they chased in the marketplace.

Yes, self-employed in the first two years are substantially more likely to claim than any other group, this is why many insurers price this accordingly.

Partners Life to date has not. And it is disingenuous to gut a product on the excuse of sustainability and what is going on in the Aussie market without exploring the options other insurers have proven as a successful approach here for a long time.

@BayBroker, I hear the thoughts on this, however, the reality is the mortgage and household expenses are being paid from somewhere, there may be a shortage of financial proof on the income earnings side of things, which is why the evidence of these is needed. This isn't a new concept and all insurers have based their financial underwriting on the evidence that a bank has 'underwritten' the mortgage. Also as an adviser looking at the household picture is also part of the equation.

A high earning partners is often the only situation where over the insurance of the self-employed person happens, and this isn't the case as often as people think.

This is also self-limiting with clients as they tend not to pay a premium if they don't have the spare income to pay for it...

Added to that the ACC/MRI or MRC thing has little traction in reality, of the many claims I have seen none have progressed for a duration that has made the ACC plus MRI piece a reality. There have been many claims on the specified injury benefits, that is another story and has little to do with the ACC offsets discussion.

@Doggy, no, no surprises on the claims experience, we've discussed this at length over many years, it is the knee jerk reaction that is going to make life hard for existing clients with cover increases and those clients looking for new cover.

This what happens when you let anything through the door in your first five-years in business. Now, all those customers that should have been deferred, excluded and/or loaded, are going and claim and your bottom line is shrinking. The chickens have come home to roost. Don't forget though, if it's grey, you'll pay!

@JPHale - The problem seems to be bigger than just simply pricing things out. You mention solutions of other companies? As far as I am aware from speaking to a number of BDMs the problem is systemic and this is more of a first movers issue. As to the Aussie market, we can't simply ignore the 3 billion dollar whole and label it purely as scaremongering. Fidelity in particular reported a $19.2 million dollar loss of which income protection claims were up 21%.
There is something fundamentally wrong with allowing Age 65 Payment Term Benefits and this isn't a Partners problem it's an industry problem.
@Tigua_Sigardur let anything through the door? I've had a sales agreement with Partners for over 5 years, they have some of the most stringent Underwriting in the market, so I'm wondering specifically what you mean by this?

@Concerned1

Clearly you are not aware of their underwriting approach in the early days. Literally anything was being accepted at standard rates.

@Tigua_Sigadur

So are you saying that they were writing standard rates for only self employed? Because as far as I'm aware that’s what the claims statistics show. Regardless of the anecdotal hot take, I think it's a reflection of the mountains of industry evidence to support the view that DI claims experience has only emerged in the last few years across the board. I was talking to a few of the folk at a Vitality roadshow that repeated these sentiments so idk, in fact pretty much every insurer I've talked to says their claims experience has been equally bad in context.

@Concerned1 it very much is an industry issue and has been one for 20 years.

Part of the challenge for all providers is the approach by PL to aggressively gain a foothold in the market has meant they have had to hold on premium increases and add features to their products to protect their market position.

Most insurers have been working to a 3-5% margin on their IP books for years and the impact of PL's aggressive product positioning has meant that these margins have been eroded.

@Tigua_Sigardur I also agree with @Concerned1 that PL's underwriting stance has been pretty tough, they move to loading or exclusion for risks far quicker than any other provider. Part of the strategy I have seen has been to take healthy lives and increase premiums quickly on increased risks. Part of the story we have seen with the premium differences up until to now.

Also to the PL underwriting approach has tended to ignore resolved conditions that aren't a problem that other providers take a harsh stance on. I haven't had a case where the disclosed conditions resulting in a standard decision have reappeared as a claim, and I have had a lot of client claims with disability in the last 3-4 years.

My issue isn't the premium increases, it is the gutting of the product for the self-employed market going forward. The price is the price, but poor product solutions are a significant problem.

The PL response is somewhat of a kick in the guts for advisers, they have done exactly what PL BDM's and training have advised and now advisers are being penalised for it with the product response taken

On the subject of the claims experience, it has clearly increased and put pressure on the industry, which is what I wrote about in the series of recent articles on this which I won't repeat here you can find these in the insurance section up there ^^^ on the menu somewhere.

@JPHale - my worry is the logical flow on. And also how they define "self employed".

For instance - farmers. I work with a lot of clients in the ag space. Are PL telling me that a farm with a 7 figure revenue line is oing to fall into this bracket? If so they won't get the business as we can't extend Loss of Revenue with an IP product - AT ALL with PLL. Where we can with others.

I'm very disappointed with the position they've taken, and I suspect this is just the beginning.

To BayBroker...Why don't you ask Partners?

To JP Hale...as i understand this, this is not something Partners expected and not something they want to do. I agree with a lot you have to say but in this case it has nothing to do with 'penalising brokers' and calling it a 'kick-in-the-guts' appears to be an emotional response at a time when we should all be analysing the issues objectively and based on fact. Just beacuse we don't like them does not mean they are the wrong thing to do.

@BayBroker that is the conclusion I came to very quickly. Anyone new in the self-employed camp is not going to be going Partners way. That clearly is what they intend with the changes.

@Tash, there's a bigger issue here than the emotional reaction.

These changes impact adviser existing book significantly when they have taken the approach of placing a person with a provider and the provider changes the rules.

What this means for many clients when they have changes to risk is they will not be able to adapt their cover to suit.

For example, presently on an indemnity LOE top-up for IP waiting to have the financials to prove agreed value, this will not be available as a transfer and security option. This represents a significant future risk in relation to maintaining the security of cover in a declining health environment.

They have say MRI and HHE covers, and then have the growth to justify coverage for the business as the business grows, this is going to be problematic, as the cover will have to be placed elsewhere, and this comes with wait period terms that may not be appropriate or suitable to the circumstances.

The client has chosen to focus on the business and not buy property, so they have HHE cover. Once buying a property and needing a restructure to a mortgage cover they hit a wall on product options.

New cover restricted to a 4-week wait makes managing premium while managing cover term problematic.

And these are but a few of the issues that will come out of advising the existing book. Which is very likely going to force a move of provider in many cases to achieve product security for clients.

And then we have the likes of Asteron Life reaffirming their position in the SME market without change.
AIA have an existing carve out of premium for self-employed and self-employed under 3 years too.

All BDM's are going to take the opportunity to say that this area is a problem, it has been for 20 years. It helps the narrative they all know they are going to have to cover int he future when premiums rise, as they do every year. It's called softening the market up. I know it well, I used to play that side of the fence.

With change comes opportunity, with a nation of self-employed, contractors and business owners, Partners Life have significantly limited themselves as a choice.

And don't misunderstand me, the Partners Life range of products have been excellent both in coverage and premiums.

The premiums were always going to move, the drastic gutting of the cover for self-employed was neither well signalled or socialised with advisers. One could think with a tin hat that it was designed to be slipped through under the cover of our holiday period with the noise of licensing. Which leads to other thoughts about genuine engagement with the market.

Trust is the greatest currency an insurer can have. When they undermine it, they make life hard for themselves. That's what has happened here.

@JPHale
I don’t really understand how the adviser existing book is being severely impacted to the doomsday levels you are suggesting? Would not any increase in business profits be covered under some sort of non-underwritten increase benefit as is built into the clients original wordings and therefore unchanging?
In terms of Wait Period Terms, wouldn’t this be only correct where it exceeds a replacement ratio? I submitted an app with an insurer a few months back (Asteron I think) that found it Financially acceptable to have concurrent wait periods even though I had Onepath DI and they were happy to insure up to 75% of Income at application. I guess this depends on the insurer, but I feel like Wait Period restrictions are the exception not the rule?
There is also a discounted premium I believe for 4 week Self Employed under these new changes. I don’t know whether this will make a difference or not, but I’ll wait until we can quote it before I pass judgement. Then again is a 4 week wait necessarily a bad thing? I’m assuming the changes were done in response to secondary mental health claims past a primary disability. I’m assuming they would prefer to manage a claim early to offset this risk? I thought I read a comment above that stated in relation to overinsurance with non-offset DI covers such as Mortgage Cover as “clearly betterment – but also as we can do it we should do it” This is precisely the behavior that’s driving long term claim exposure for providers. I’ve never seen the sense of providers offering % Gross Income as Mortgage Cover. Only asking for trouble if you ask me.
The fundamental issue here is “Is there a systemic problem with Disability Cover” and if there is “What is the reality of the problem?” I’m assuming from the general outrage here on what Partners Life has done, the general perception is that there is a degree of knee jerkery by Providers to start culling New Business Disability applications? In order for me to answer whether there is value, my question would be more metric and less anecdotal. Do we have a problem? Yes. Providers can PR spin what Partners has done to get an increased market share all they want. But Ultimately the signs are there that this it’s not only going to be Partners Life moving in this direction. Especially since reinsurers have pulled out of it in the Australian market.
Unless I’m missing something, no one has done anything to address the issue, and pointing to separate Rates tables for Self Employed does nothing but encourage healthy lives to change provider when process inevitably come up. Saying you’re not going to do anything is also not a solution, which Fidelity has noted recently.
Yes, this is obviously going to cause some disruptions to their New Business, I’m just not convinced this will be the last insurer to do it in the face of the absolute abundance of evidence out there to suggest that this merely isn’t providers propaganda on the back of an Australian experience which is happening here. I’m assuming they knew this was likely to raise a few eyebrows. I would just prefer to see the actual market impact instead of the hypothetical one.
Also I’m confused, In your first comment you state that this was Signaled and then your claiming it was trying to be somehow hidden so the market would just ignore it? I’ve been receiving all sorts of collateral in relation to this and in fact I have read a few of your articles in the months leading up to this. Also forgive me but if your still on holiday in March/February I take my hat off to you.
Then again I could be wrong, I don’t write as much DI as I would like and definitely not as much with Partners given some of the UW. I don’t see this move as a kick in the guts as much as maybe an indicator of how scary times are given how Products are designed in a One-upmanship manner.

@Concerned1 signalled in late Jan and acted on three weeks later... Pretty short timeframes for any business to cope with.

I'm not suggesting doomsday issues, you haven't understood my comment. For the individuals concerned it very much will be an issue for them And no they aren't necessarily going to be absorbed with existing policy options.

As I also said, all insurers have had this pressure for years, many have coped well with it.

The challenge has been PL have applied additional pressure on them while they held premiums lower, so yes they will now have space to move premiums. That doesn't say that there is wholesale instability in disability. Is there pressure, yes.

The other side of the coin is Aussie doesn't have ACC, again something that helps NZ insurers in many cases, also a good part of the reason we see a 50% reduction of premiums with a 13 week wait.

Forcing a 4 week wait adds to the problem where claimants not receiving a claim due to offsets cancelling their covers.

This has long been a problem with IP, which is why I came up with the MRI/IP mix in 2002 for my advisers... Yeah, I was doing tho a long time before most had figured it out.

It stopped the policy holder from cancelling good cover when there were longer claims. The reality is for the bulk of claims you have ACC pay but the rest doesn't because it is still within the wait period.

The double payment piece is a red herring.

@Tash - I have. Verbally and via email. A week+ later I am still waiting to hear their answer. Apart from - "there will be something on this coming out - still finalising"

Now there are some smart people at PLL and one would have thought that they'd have anticipated these questions and had an answer ready. That they haven't worries me - was this a hurried release?

Also, why a 4 week wait? Surely this is more of an exposure to an insurer? Or is it more that they want the higher premium?

Regardless, it looks as though I won't be doing much business with PLL moving forward. Which is a shame as I love their business products, but struggle with supporting a company that makes such changes some of which don't seem very logical - for instance why penalise a long standing business with consistent revenue, profit over a long period of time, but still in a "small business".