Life insurers may rethink disability cover as mental ill-health spreads

As mental ill-health has become one of the most pressing health issues in our time, the life insurance industry needs to rethink its offering to those who have been unwell and those who may be in future.

This was the message in presentations to the Actuarial Society of South Africa (ASSA) conference both this year and last and is echoed in an article in the society’s latest magazine.  

More than one in eight, or one billion people worldwide, have a diagnosable mental health condition, according to World Health Organisation statistics, Nick Wells, senior marketing actuary at Swiss Re Africa, told this year’s conference.

Globally mental ill-health is the biggest trigger of disability claims, Swiss Re’s senior medical officer for the EMEA region, Dr Moritz Drefs, told last year’s ASSA conference.

Mental ill-health increases disability claims

As a result, the insurance industry has traditionally underwritten policyholders with these conditions conservatively, typically applying exclusions on cover or loadings on premiums for anyone who has experienced mental ill-health in the past.

But increasing diagnoses of mental ill-health means insurers face rising claims from existing policyholders who do not have these exclusions or loadings, and many more future policyholders who face cover with exclusions or loadings may find it unattractive.

Global data suggests that one in three people will experience a mental disorder during their lifetime and one in five may be affected in any given year, Keelan Moodley, senior marketing actuary at Swiss Re Africa says in a recent article in The Actuary magazine.

Moodley also highlighted the increasing prevalence of mental ill-health among younger generations and argues that products and services need to balance access to cover and support for policyholders with the sustainability of the life insurance industry.

Mental health risks can be modified

Consumers value support for mental well-being and offering this support is also valuable to insurers because it can prevent claims and manage a sustainable return to work without relapse and related claims, Moodley says.  

He says insurers need to be more proactive to prevent claims, by educating policyholders, offering wellbeing tools, screening programmes, guided support and digital solutions with clear pathways to human care when it is needed.

He also says two policyholders with the same diagnoses can have very different recoveries and stepped care is essential to ensure resources are used where they add value.

He called on actuaries, underwriters, medical experts and technology partners to work together to develop more inclusive cover with lower claims for mental ill-health.

At this year’s ASSA conference Wells shared his personal insights into mental ill-health after being unable to work full-time and claiming disability benefits for almost three years. He urged the actuarial profession to consider how to offer those who are unwell an opportunity to modify their risk to the insurer and potentially thrive.

Wells said mental health presented the actuarial profession something it is well positioned to understand: a multi-dimensional problem with many interacting factors. Actuaries can model the interactions and ask which are the most important and how people could be helped to thrive, he said.

Mental ill-health exclusions and loadings

Smart About Money asked two life insurers how exclusions and premium loadings are applied during underwriting to policies issued to consumers who disclose a mental illness.

Both said underwriters assess the risk of a mental health condition leading to a claim in the same way they assess physical health conditions. This information is used to set premiums for your cover.

Gareth Friedlander, the deputy chief executive officer of Discovery Life, said underwriters assess your mental or behavioural condition, any interactions between your illness and other conditions you may have and how these conditions are being managed.

Depending on your risk profile, you may qualify for standard rates, be charged a premium loading, or your application for cover may be declined. Cover for mental health conditions is only excluded when the risk means you would not be able to otherwise access cover. This ensures you can get cover for other defined conditions at a fair premium, Friedlander says.

He says that if exclusions or loadings are applied and your condition later improves, these exclusions and loadings may be removed.

Nic Smit, pricing and product executive at Bidvest Life, says many applicants who disclose a pre-existing mental health condition but do not, in the insurer’s view, present an additional risk of claim, are offered standard rates without exclusions.

For more severe risks, Bidvest Life applies loadings of up to 200% of the standard premium and/or exclusions, and in severe cases, may decline to offer cover on certain benefits.

Smit says some of the key factors Bidvest Life uses to assess any mental health condition are:

The conditions you have been diagnosed with: For example, having anxiety is very different from having bipolar mood disorder, Smit says.

How long ago you had the mental health condition.

Whether you have been unable to work in the past due to your mental health condition in the past.

Whether the condition was driven by temporary circumstances, such as grief in response to a death. This is very different to ongoing general anxiety.

Whether the cause of your mental health issue, such as a stressful occupation, is still present.

What treatment you have undergone and whether you have been prescribed medication.

Whether there are any other risks, such as self-harm or substance abuse, related to the condition.

Underwriters will consider how long ago any mental health condition occurred and after sufficient time has passed a loading or exclusion can be reassessed but being claim free does not mean you are no longer a risk, Smit says.

Could cover be improved?

Moodley says life insurers can serve policyholders better and save costs with:

Better data that is coded consistently, captures the severity, treatment history and relapse patterns so underwriting can be done with more precision;

Underwriting exclusions that are not blanket exclusions but rather condition-specific, time-bound or reviewable;

Prevention, early intervention and rehabilitation that reduce incidence rates and prevent claims, helps claimants return to work sooner, shorten the length of claims and reduce relapses;

Ongoing support for those with mental illnesses so that when claimants return to work they can cope with future episodes or challenges; and

Flexible product design – for example, lower initial benefits with the ability to buy up later after claim-free periods.

This could mean in future your life insurer will ask for more information about your condition and offer you participation in a mental health programme. But this could ultimately lead to you managing your condition better and enjoying better protection from disability.