2012 ALUCA TurksLegal Scholarship
1st Runner up Successful Underwriting Of Mental Illness Stephen Connolly | CommInsure Underwriting
According to the Australian Institute of Health and Welfare, the impact of mental illness within the Australian population has become increasingly apparent. A survey conducted by the Australian Bureau of Statistics in 2007 found that an estimated 3.2 million Australians (20% of the population aged between 16 and 85) had a mental disorder in the twelve months prior to the survey. This represents a significant proportion of the Australian population and more relevantly a significant proportion of customers of the life insurance industry. Since 2001 the life insurance industry has been working with support groups and other mental illness stakeholders to change the industry’s underwriting approach to mental illness. Please discuss the progress of the Memorandum of Understanding over time and the changes that have occurred to industry practices as a result of it. The first MoU between the Life Insurance Industry and Mental Health Stakeholders was signed in March 2003, and re-signed again in 2004, 2006 and 2008. Your answer should include an evaluation of the industry’s progress to date and an analysis of the options for further understanding and improvement in the future.
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In 2003 the first Memorandum of Understanding (MoU) was signed between the former Investment & Financial Services Association (now Financial Services Council), and a number of community and medical associations known collectively as the Mental Health Service Stakeholders (MHSS). The MHSS included representatives from Beyondblue and the Mental Health Council of Australia (MHCA). The agreement was widely praised as a world first and was the culmination of collective works between the stakeholders since 2001. The goal of the MoU was to improve outcomes for people with a history of mental illness seeking life insurance, by increasing industry and community understanding of mental illness and establishing a framework for the fair and equitable treatment of mental illness at all stages of the insurance transaction. Almost a decade later mental illness continues to draw significant attention from community health groups, governments, and insurance providers. This paper will discuss the history of the MoU, and provide insight as to how underwriting may evolve in the future to combat current issues facing mental health consumers, as well as address some of the challenges faced by providers of income protection (IP) insurance.
The History of the MOU Following the first MoU In 2003, IFSA published industry wide guidelines on underwriting with respect to mental illness. The report made several recommendations, including: i) ii) iii)
The need for improved education, and access to expert medical advice with respect of underwriting mental illness, Streamlined processes, including customer and GP directed questionnaires to obtain accurate and useful information as fast as possible in order to reduce delays, Improved standards with respect to communicating underwriting decisions made on the basis of a mental disorder.
After much acclaim, the MoU was re-signed in 2004 and 2006 committing the parties to further build on their work, and over this time observers noted several improvements, including: i) ii) iii) iv) v)
Improved access to, and understanding of, complaints resolution processes. Development of communication lines between the insurance industry and the medical community. Improvement in industry attitudes and practices more accurately reflecting medical knowledge. Improved education for underwriting and claims staff Ongoing development of research and data collection.
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On its final signing in 2008, the Financial Planners Association (FPA) joined as a signatory to the MoU as part of the commitment to develop education and training programs for financial advisers. The MoU also committed the parties to providing better education for mental health consumers and their carers, following earlier data suggesting that many people still did not fully understand their rights and obligations with regards to insurance. On its final signing, three working groups were established to address key areas of concern. These were: i)
The Simplification Working Group – to review and update underwriting and claims guidelines insofar as they relate to mental health consumers to maximise both simplicity and appropriateness.
ii) iii)
The Information, Education & Awareness Working Group – to identify gaps in industry and consumer knowledge and awareness, and determine ways to bridge those gaps. The Complaints Processing and Monitoring Working Group – to review complaints processes, identify systemic issues and determine how best to enhance those processes.
The Impact On Underwriting, Claims and the Community UNDERWRITING DECISIONS The FSC has been collecting data since 2003 which enabled key stakeholders to track and review the success of the MoU. Data from the FSC revealed that between 2003 and 2007 there was a significant drop in the number of insurance applications being declined on the grounds of mental illness with a proportionate rise in the number of applicants being offered terms with exclusions or loadings. With regards to IP, the decline rate over this period dropped from 60% to 28%, and applications offered with an exclusion increased from 10% to 46%. To many this was a strong indication that the 2003 IFSA guidelines had indeed had a significant positive impact on accessibility of an appropriately modified insurance policy, although more recent criticisms from Beyondblue and the MHCA suggest that these outcomes may not always be justified.
CLAIMS EXPERIENCE Claims experience is paramount for any insurer looking to evaluate and modify its underwriting behaviours, and in the years since it’s signing many insurers continue to keep a close eye on mental illness claims.
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In 2011 the FSC released an updated Mental Disorder Claims Analysis, which comprised of open claims data as at 1st October 2009. The report also compared findings with earlier studies released 2006 and 2003. Amongst the findings, mental disorders attributed 19% of all IP claims by number, up 2% since 2006 and 3% since 2003. Furthermore, in 2009 mental disorders attributed 26% of all IP claims by benefit amount, up 4% since 2006 and 1% since 2003. The report also highlighted key features of claims relating to mental disorders, such as longer claim durations and higher incidence at larger sums insured. However, interpretation of these trends is made difficult by other key observations, such as: i) ii)
Mental disorders have shown to be associated with increased claims durations, and in an expanding market it would be expected that the proportion of open claims for mental disorders would naturally increase. Mental disorders continue to represent a higher proportion of claims at the professional level, and as such the associated benefit amounts tend to be higher.
Whilst it is clear that mental disorders continue to impact substantially on claims experience, it is difficult to assess whether the MoU or the associated change in underwriting practices has had any significant effect on overall experience. However, there is substantial data from the Australian Institute of Health and Welfare (AIHW) to suggest that not only are mental disorders a leading cause of disability, but they also contribute substantially to comorbidity: i) ii)
45% of people will experience a mental disorder in their lifetime. 25% of people who reported a mental disorder in the last 12 months suffered from more
iii) iv)
than one class of mental disorder (i.e. anxiety and depression) People suffering from a chronic physical illness are more likely to suffer from a mental illness. Additionally, people with a combination of a mental and physical disorder reported twice as many days out of their role in the last month compared with people with only a physical condition. People with a mental disorder reported higher levels of smoking, alcohol consumption and physical inactivity than those with no history of a mental disorder.
Moreover, given their potential to adversely impact on other health conditions it is likely that the true impact of mental disorders on claims experience has been understated.
COMMUNITY OUTCOMES Whilst it is generally held that the MoU has had a positive impact on the accessibility of
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insurance to those with a history of mental illness, many commentators still recognise a large disconnect between the two groups. In 2010 the MHCA and BeyondBlue made a joint submission to the treasury regarding unfair terms in insurance contracts. Within the submission they reported that many people with past or present mental disorders continued to experience challenges in obtaining insurance, and in particular income protection. They further note that of consumers who were able to obtain cover, some were only able to do so with large premium loadings and/or blanket exclusion clauses covering all forms of mental illness, which they felt was an unfair and disproportionate assessment of the risk that they actually presented. Later in 2010, the groups undertook a further survey of customer experiences of mental health and all types of insurance which again supported this conclusion. Of particular note, 53% of respondents either agreed or strongly agreed with the statement that they felt insurance (in general) was difficult to obtain due to mental illness. Furthermore, by limiting the data to respondents who had only applied for Life and/or Income insurance, this figure rose staggeringly to 82%. The report also included direct quotes from respondents, revealing the following themes: i) ii) iii)
Underwriting practices were viewed as invasive and humiliating, Underwriting outcomes were viewed as not accurately reflecting the risk that respondents attributed to their illness, Respondents noted a high level of distrust of the insurance industry.
Challenges For Underwriting and the Mental Health Community MATTER OF TRUST Fundamental to the ongoing success of any insurance arrangement is the instilment of mutual trust. Clients need to trust their insurer to pay their claim in their time of need, whilst the insurer must trust their client to uphold their duty of disclosure and to not anti-select against them. If the trust of either party is diminished, then both sides may take action to avoid the creation of a contract and in the process drain considerable resources from both parties. In their 2010 submission to the treasury, the MHCA and BeyondBlue highlighted that many people who have had negative experiences with insurers have simply given up hope of insurance, further exacerbating the underinsurance problem in Australia. Their research also highlighted reduced trust across a variety of factors including:
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(i) (ii) (iii)
Concern that a disclosure of mental illness may lead to discrimination, Concern that insurance companies and advisers are poorly educated on mental health, and Concern that exclusions for mental health may be used to refuse claims for unrelated events.
Whilst is it debatable as to whether such concerns are founded or not, there is a perception of undue conduct of insurers with respect of mental illness. Key to addressing this issue is the engagement of advisers, and the need for transparency of underwriting process and decisions. It is vital for successful underwriting that all relevant information is disclosed upfront. The challenge for underwriters will be to determine how best to gather such information, and to do so in a manner which will enhance the insurer client relationship. A fine line exists between what is an acceptable and what is an unacceptable degree of invasion, by an insurer of the insured, at time of underwriting. For many clients the most mutually beneficial method of communicating such history would be with the Personal Medical Attendant’s Report (PMAR), where an applicant can rely on their treating doctor to provide all the necessary information concerning their history. However, PMAR’s may be costly and cause significant application delay and many insurers are continually looking to adopt other avenues of communication in order to reduce costs and end-to-end times, such as improved questionnaires and telephone underwriting. Moreover as gatekeepers of the insurance contract, underwriters will need to instil trust in their knowledge and ability to appropriately communicate with and assess people with mental disorders, and to both understand and educate why the decision itself is appropriate to the risk being assessed.
SHADES OF BLUE A key indicator of the success of the MoU has been the dramatic decrease in policies declined on the basis of mental illness and the subsequent rise in those offered with an exclusion. However some have criticised such decisions, particularly with regard to blanket exclusion clauses and generalisations based on diagnosis alone. When moving into unknown territory, it is not unusual for an insurer to overcompensate on its provisions rather than undercompensate. After all, it is far easier for an insurer to loosen its position at a later date whilst it may be very difficult to tighten its position. However, as experience with mental disorders continues to grow and as community pressure mounts it is likely that such broad provisions will face challenges in application. For instance, if a client is excluded for all mental illness due to a history of work related anxiety however following the issue of the policy suffers depression due to a death in the family, should the insurer be in a position to apply their exclusion? The claimant may challenge on the grounds that there were no symptoms of depression prior to the contract. Conversely, the insurer might counter on the
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basis that both presentations are features of an underlying pre-disposition to mental disorders. It is also clear than many consumers have felt that insurers have relied too heavily on a person’s diagnosis in making a decision, without giving due consideration to that individuals own history in managing their disorder. This is particularly the case with disorders such as bipolar and schizophrenia. However, at this stage the diagnosis is likely to remain the vital indicator with all population based studies and as such this issue is unlikely to be resolved in the near future. Ongoing partnerships between insurers, health care providers and mental health community groups will be essential in further researching all mental disorder so that underwriters will be able to identify and grant appropriate cover to those sufferers that have been able to effectively live and work with their condition.
SOMETHING’S GOTTA GIVE Whilst we may celebrate the success of the MoU in establishing greater access to insurance for people with a history of mental illness, we must also recognise the significant challenges faced by current providers of income protection insurance. When claims experience deteriorates beyond that forecast and insurers begin to lose money across their book of policies, the only options available to remain viable is to either increase the premiums rates across all policy holders (more money in) or to impose greater restrictions on new policy holders in an effort to reduce the impact of future claims (less money out). Unfortunately in a fiercely competitive IP market neither solution is attractive to customers, and so the importance of sound underwriting in maintaining harmony between forecast and actual experience cannot be overstated. As mentioned previously, mental disorders continue to present a complex challenge in insurance underwriting due to the significant and increasing attributed burden of disease as well as their strong correlation with comorbidity. In order for MoU stakeholders to continue to develop their relationship into the future, it is vital that appreciation be given to the challenges faced by both sides. This will enable the insurance industry to address the needs of the mental health community whilst also maintaining a viable product for the benefit of all insurance members.
Conclusion In 2010 the last MoU expired, and it remains as yet unclear whether the document will be resigned. The MoU has been widely praised as being a model practice in breaking down the barriers faced by sufferers of mental disorders in seeking insurance, and in many aspects the MoU has succeeded in its original goal.
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However, a number of issues still remain and with them the challenge for insurers to evolve and breakthrough the next generation of mental health underwriting. The first generation saw the wider use of modified insurance policies in granting cover to people with a history of mental illness, as well as the standardisation of information gathered on mental health for insurance purposes. The challenge for the next generation will be to build an open forum for underwriters, advisers and their clients in order to foster greater trust and cooperation, and to increase flexibility of options for underwriters in setting appropriate insurance contracts in place to protect the rights of both the insurer and the insured.
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Endnotes 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.
MHCA, IFSA and BeyondBlue (13 March 2003); Media Release – Mental Health Stakeholders and life insurers join forces for mental health IFSA (March 2003); Underwriting Guidelines for Mental Health Conditions MHCA, IFSA and BeyondBlue (24 February 2004); Media Release – Assistant treasurer applauds ‘community-meets-business approach’ to life insurance for people with mental health problems IFSA and MHCA (12 April 2005); Media release – MHCA/IFSA communique signals better outcomes for mental health and insurance MHSS and IFSA (June 2006); Memorandum of Understanding IFSA (20 June 2006); Media Release – Mental health sector stakeholders & IFSA workshop communique MHCA, IFSA and BeyondBlue (30 June 2006); Media Release – Mental Health stakeholders recommit to Memorandum of Understanding MHCA, IFSA, BeyondBlue and FPA (13 October 2008); Media Release – Mental health community and life insurance industry sign MOU IFSA, MHCA and BeyondBlue (October 2008); Working towards positive life insurance outcomes for mental health consumers. A report on the partnership between Mental Health Sector Stakeholders and the Life Insurance Industry MHSS, IFSA and FPA (October 2008); Memorandum of Understanding MHCA and BeyondBlue (May 2010); Treasury consultation on ‘Unfair terms in insurance contracts’ BeyondBlue, Lifewise, MHCA and FPA (September 2010); Mental illness and life insurance : What you need to know – a detailed guide Australian Institute of Health and Welfare (September 2010); When musculoskeletal conditions and mental disorders occur together Australian Institute of Health and Welfare, 2011; Comorbidity of mental disorders and physical conditions 2007 MHCA and BeyondBlue (2011); Mental Health Discrimination and Insurance: A Survey of Consumer Experiences 2011. Rice Warner Actuaries, February 2011; Mental Disorder Claims Analysis 2010
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