Meatworkers. Electricians. Not what your average insurance company might think of as ideal income protection policy candidates.
However, risk can sometimes be an advantage, depending on the way you look at and assess it across an entire membership base.
Finding a member income protection policy that fits a diversified base of hundreds of thousands of members is no easy feat.
However, a flexible, tailored approach, rather than a blanket approach across the whole membership base, can increase the level of cover and lower costs for all members.
Underwriters assess the type of work being performed by specific groups based upon their occupation, splitting these groups into categories, including professional, white collar, light manual, heavy manual or mining (or what’s known as white and blue collar).
Each group has different rating structures according to their exposures.
For example, solicitors would be considered a low risk and coal miners high risk, with premiums charged according to their level of risk to injury or illness.
However, if you look at a fund that seems quite risky, such as the meat workers, it may be that a blanket approach of calling them all high risk should not apply.
For example, how many of them are working in an office or other jobs that don’t actually involve directly operating machinery?
In this case, making such a distinction can actually lower premiums across the board.
In fact, the perception of a risky industry may not be correct.
For example, it may be that a large part of the work-based risk is already taken out by workers compensation, so in fact the income protection might not need to cover that high level of risk.
It will, of course, still be important for other accidents which can happen outside work.
On the flipside, if you’re a fund with mostly white collar workers, it may be that your standard policy is not providing a high enough level of protection for some workers that might be higher risk.
True, you might have mostly white collar workers, but are you adequately protecting other employees, such as your truck drivers, for example.
Also, there are other limitations to the white collar/blue collar divide for risk. A number of claims handled by Beazley come from outside work.
One classic example is in the UK, where there are a number of claims relating to rugby injuries, a sport that has a high concentration of players who are white collar workers.
In some cases, it may pay to use two providers or two policies: one can cover the bulk of the member base at the cheapest rate, while another can potentially provide better rates for those who some insurers would judge risky.
For example, with one of Beazley’s clients, Energy Super, we have actually divided them into three separate groups of risk.
This was also particularly useful as we manage various legacy policies resulting from the merger of ESI and SPEC Super.
As well as the occupational groups mentioned above, insurance providers take into account a number of other factors.
The age distribution is a risk factor, particularly if there is a high age profile which can impact the claims experience.
The main risk factors then are a higher volume of claims in the older age groups, coupled with sometimes a reduced motivation to return to work.
Also, when underwriters are approached to insure a group of employees with no previous insurance history, they rely upon their experience of writing similar-sized schemes in the same occupational group.
If data is not available, this potentially increases the risk of pricing too high or too low.
The majority of underwriters prefer to avoid voluntary schemes, because they are unlikely to get a good spread of risk due to the uncertainty of who will take up the cover (it could be more weighted towards people of poor health or older employees).
The underwriter must ensure premiums are adequate to cover the additional exposure and the increased administration costs associated with servicing voluntary schemes.
We all know the more cost effective a scheme is, the better it is for members.
Accessing income protection through super funds often results in the best price for the end user, as it is possible to negotiate a group rate and take a more flexible attitude to risk.
Other income protection providers might have different ways of looking at risk, and for some funds more straightforward policies will be fine.
For others, a more flexible approach might be of benefit.
It is a challenge for funds to properly address but a challenge which is often worthwhile in the long term.
