Income protection and the economic cycle
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Discontent is engulfing the retail income protection insurance sector. This is not surprising given income protection claims have doubled in the last ten years.

The steep trajectory of claims costs is making life insurers unhappy while rising premiums are making customers unhappy. Something is wrong here.

Although many, varied factors contribute to the industry's growing dissatisfaction including the onslaught of mental health- related income protection claims, the potential implications of genetic testing and concerns about so called 'gold plated terms', they don't address a key root issue.

These contributing factors are somewhat noise, distracting from a fundamental cyclical issue. Today's pattern of rising claims, rising premiums, rising claims, rising premiums is symptomatic of broad macroeconomic forces that seem to be generally ignored by the industry.

At the heart of the matter are cyclical determinants like slow wage growth, unemployment and the insidious issue of underemployment, fuelled partly by the current rate of technological change driving things such as the gig economy.

The role of individual differences is another big part of the income protection equation. People's coping mechanisms are being put to the test in the current economic and technological change environment. As a result, the workforce's health and well-being is under threat and claims are rising.

What to do? To combat this increasingly complex landscape, life insurers need to evolve their thinking and fight the temptation to fall back on what has historically worked and made sense.

Ongoing pricing cycles, for instance, are not helpful. We need a different perspective. There must be a circuit breaker to better understand and manage the product; and at an industry level.

This white paper delves into the economics of income protection. It draws on opportunities for better cycle management and increased control for providers.

It aims to explain the current economic cycle, and where we are positioned in that cycle, so meaningful changes can be made. It is possible to achieve better price stability, meaningful product changes (and maybe even innovation) and an improved customer experience. Contentment awaits.

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