An emerging area of trouble for the insurance industry is the shifting perception of what "disabled" means. Once upon a time a man who lost two limbs wasn't considered very disabled provided he could work while sitting. Those were harsh times and we are all glad they are behind us, in this country at least. But another shift is occurring: a shift in perception around mental disorders.
This morning I spent an hour talking with a man who had an income protection claim declined by a major insurer here in New Zealand. His disability was caused by a temporary but clearly debilitating mental condition. He has since recovered and is now back at work. That much is the good news. I have great sympathy for his situation, because while it was clear to me that he wasn't cheerfully chucking away a six figure income to spend weeks in hospital and then hours on end in therapy that wasn't clear to the insurer. The insurer's position was that he probably could work if he really wanted to, and not paying him was a good way to create that motivation.
Seated at the next table over was another man who chimed in to tell us that he had the same condition - and his insurer had paid.
I have no idea who was "right" in an objective sense. I also know that spending just one hour talking only with claimants is not going to deliver enough factual information to form that view.
What struck me though - and this applies whether the claimant was right or wrong - is how awful it is to have a contract that is so unclear that both parties completely believe they are correct.
Nowhere in the contract does it state that this particular mental illness was not covered. Nowhere in the contract does it make clear the nature of the work test that will be applied. Conflicting claims treatment by different insurers makes it appear confusing for consumers - even though I know that the terms of the contracts differ considerably, that detail does not find its way into the coffee shop chats that people have with each other. They simply conclude that "Income Protection insurance is a waste of money." Yet this is an important contract that should cover more people - not less.
Quality Product Research Limited has a methodology which marks down some products for explicitly excluding mental illness, but I am concerned that we may be missing an 'attitude of non-payment' in some insurers which is not explicitly contained in the contracts. This is exemplified in finding two people seated in a cafe who had the same condition who had completely different claim results.
I would like to stress again that I am not presuming the insurer was wrong - their attitude of non-payment on this particular condition may be exactly the right thing to do for all concerned. However, it would have saved everyone a great deal of money if they could have been clearer about it.
The risk if they don't make it clear is this: that societal perception of disability will shift forcing unanticipated claims into products which are not priced to pay them. Put simply: litigious clients will convince the judiciary of the equivalence of their mental disabilities to the physical ones the contracts were originally priced to cover. Then the industry will then lose a pile of money, create a pile of negative publicity, and will need to increase prices to cover these claims. A shift of this type may be part of the income protection and total and permanent disablement pricing problems current in Australia.