RGA Australia has questioned the disability income insurance sector’s sustainability amid rising claims that are not offset by increasing premiums.

The reinsurance group has conducted a wide-ranging review of disability income claims, examining claims management, underwriting and policy wording.

Head of Underwriting and Technical Services Meredith Barnes says the disability income sector works but has its problems.

“This somewhat benign assessment belies a much richer and complex set of underlying sector issues that go to the heart of affordability for consumers and the long-term viability of the product,” she told insuranceNEWS.com.au exclusively.

“Disability income premiums are increasing and products need to be redesigned to maintain long-term affordability.”

According to Rice Warner, premiums increased 9% between 2013 and 2014.

“A question we are frequently asked is: when is this going to stop?” Ms Barnes said.

“The long-term financial impact on consumers is quite real. And the truth is, with more claims that are lasting longer and sustained losses across the industry, these increases have likely been insufficient, which means there are more to come.”

RGA says incidence rates were up 21% in 2013-15 compared with 2004-08.

Terminations fell 8% over the same period, and Ms Barnes says the trend is not good.

The solution need not be dramatic.

“While starting again with new products makes sense in the long term, after reviewing claims files, RGA believes there are modest, commonsense changes that would provide improvements,” Ms Barnes says.

The changes may include a focus on rehabilitation and retraining, and could have no or very limited impact on systems.

“They could be managed within product disclosure statements and policy documentation only, making them easily implementable,” she said. “These simple changes would also open the dialogue and thought process about what better products for all parties might look like.”

Ms Barnes also recommends moving from either proving or disproving disability to a model in which the insured, medical advisers and the insurer work together on rehabilitation plans.

“Products must support, encourage and facilitate this approach, both in their language and in their features and benefits. They would ideally satisfy a real financial need, and the insured must have a reasonable degree of responsibility for their progress and recovery.

“The focus should not be on what the insured can’t do, but what they can do, and what support they need to recover and get back to a normal life.”

She says each part of an insurer’s team – sales, underwriting and claims – should support and promote the same message.

“Until all stakeholders are prepared to work together to achieve this goal, the process will remain opaque to consumers. We need to be transparent if we want to build trust, and while the paradigm won’t change overnight, the discussion can begin now.”