‘Own’ versus ‘Any’ occupation: an important difference when comparing Income Protection products

‘Own’ versus ‘Any’ occupation: an important difference when comparing Income Protection products

Dr Jeff Scott, Head of Advice Strategy, MetLife Australia

After recovering from injury or illness, it’s not unexpected that most Income Protection policyholders would prefer to return to their own occupation. That is, the occupation in which they’re experienced and qualified, and for many, an occupation they enjoy.

Most insurers assess the life insured’s ability to work in gainful employment based on their usual or ‘own occupation’ at the date of disability. However, some insurers now amend this criteria to an ‘any occupation’ definition once the customer has been on claim for a defined period of time, often two years.[1]

The ‘any occupation’ definition of disability examines the ability of a life insured who is on claim to perform any reasonable occupation they are able to perform, based upon their previous education, experience, training – or any other reasonable training.

Changing the assessment criteria for a customer on an Income Protection claim from an ‘own occupation’ to an ‘any occupation’ definition is likely to create some uncertainty and may impact claim payments to the customer. Accordingly, ‘own’ versus ‘any’ is a critical consideration when comparing Income Protection products.

The new Income Protection landscape

The recent introduction of APRA’s Individual Disability Income Insurance (IDII) measures has resulted in a raft of product changes in the market, with some Income Protection products becoming significantly more competitive[2].

With all life insurance companies updating their retail Income Protection products at the one time, it can be quite daunting to compare all the new products and variations and to assess what’s right for the client. A significant change for some income protection policies issued from 1 October 2022 is the introduction of an ‘any occupation’ definition where the life insured has been on claim for more than two years (or some other defined period of time).

APRA stated that there is nothing inherently wrong with benefit periods to retirement age, but the risks associated with long benefit periods must be managed appropriately, so it does not detract from claimants’ motivation to return to work.[3] With effect from 1 October 2021, APRA expects life companies to have established effective controls to manage the risks associated with long benefit periods, including specific product design features.[4]  To manage these long term risks, some life companies have elected to introduce an ‘any occupation’ definition for claimants after two years (or some other defined period of time).

In response to APRA’s findings, the Actuaries Institute Disability Insurance Taskforce recommended in the Reference Product Individual Disability Income Insurance – Version 1.0 – April 2021 (page 12), that:

Suitable work means:

• In the first two years from the date of disability, your regular occupation.
• After the first two years from the date of disability, any occupation for which you are reasonably suited by way of education, training or experience.[5]

It is important to note that the Actuaries Institute’s recommendation is not a requirement of insurers – It was developed as a framework to help define and manage risk.

A life insured’s regular occupation is commonly referred to as ‘own occupation’ or ‘usual occupation’, while after two years the definition is commonly referred to as ‘any occupation’ or ‘ETE’ (education, training or experience).

Most financial advisers will remember that the majority of retail Income Protection policies issued prior to 1 October 2021 were based upon the ‘own occupation’ definition, regardless of the duration of the life insured’s disability (or claim).[6]

Implications

Industry statistics have stated that approximately 85% of all retail Income Protection claims are finalised within six months, while 92%-95% of all retail Income Protection claims are finalised within two years. This results in approximately 5%, or one in 20 claims, continuing beyond two years.[7]

From 1 October 2021, some retail Income Protection policies have retained the ‘own occupation’ definition for the duration of the life insured’s claim. Other retail Income Protection policies utilise the ‘own occupation’ definition during the first two years of a claim and revert to the ‘any occupation’ definition where the claim lasts longer than two years. [8]

What does this mean for the life insured?

The assessment criteria for how a benefit is paid will change for the life insured if they remain on claim longer than two years. This new assessment criteria has the potential to create a very diverse set of outcomes for claimants.

Legal precedents

There has been no precedent setting legal cases in Australia that use an “any occupation” definition for income protection policies (IP).  There have been numerous precedent-setting legal cases for a lump sum total and permanent disability policies (TPD) that utilise a similar ‘any occupation’ definition, that relies on the assessment of the life insured’s inability to perform any occupation for which they are reasonably suited based upon their education, training, and experience (ETE).

Let’s examine some of the various factors an insurance company needs to consider when applying the ‘any occupation’ definition.

Case 1

In 2011, the County Court of Victoria opined that when considering the definition of any occupation as suited by education, training or experience, consideration could be given to relevant factors including:

1. The specific work duties the individual performed throughout his employment;
2. Any tickets or certificates the member had obtained previously;
3. Any particular licences, such as forklift driving etc that the member had;
4. The level of seniority he achieved in the employment;
5. The relevant in-house training programs he completed previously over his years of employment;
6. Any particular other skills or experience he had obtained;
7. Whether he was regarded as a competent and capable employee.

Case 2

In 2005, it was agreed that an employee was unable to perform her own occupation as a clerical office worker, but the judge was satisfied that there were a number of positions that the appellant was suited to given her education, training and experience such as Mediation Clerk, Tourism Information Clerk, Sales Assistant.

Case 3

Alternatively in 2017, in the case of a tradesman roof plumber who suffered from a lower back injury and Fear Avoidance Syndrome, could not perform his own occupation, and could not perform any other role for which he was reasonably suited base on his education, training and experience, based on his vocational history. The courts held that the only work he was reasonably fitted for was manual labour. Roles considered but later deemed unsuitable for the roof plumber included: retail sales (hardware); Courier/delivery driver; Console operator; and Customer service advisor/telemarketer). The Court also reiterated that whether a person is reasonably fit for a particular type of work will always depend on the facts of the particular case.

Case 4

In 2012, a man fell and injured his back while working as a removal assistant. He began working part-time (15-20 hours per week) as a taxi driver, and although he could no longer work as a removal assistant, the Full Court decided that his work as a taxi driver was reasonably within his education, training or experience, as he had previously worked as a truck driver. The man had undertaken a short course to retain his certificate to work as a taxi driver. The Court indicated that additional training or certificates a person undertakes subsequent to ceasing employment, will not be an indicator of the type of employment being outside the scope of their education, training or experience.

Case 5

In 2015, a man who suffered an injury to his right wrist that resulted from hyperextension while lifting a heavy gearbox, causing significant damage to a ligament and also to his shoulder.  The court held that the need for further training does not mean that a person is not already capable of performing alternative roles to which they may be reasonably suited. The Court ruled that the man was unable to perform his job as an automotive mechanic, but it was reasonable for him to work as a sales assistant, spare parts interpreter or a sales representative in the automotive industry.

Summary

The legal precedents in the area of lump sum total and permanent disability policies (TPD) indicate that those Income Protection policies (IP) that revert to ‘any occupation’ after a period of time may see claimants required to work in occupations they chose to leave or not engage in previously. This may, in turn, have a longer-term impact on recovery and attaining their pre-claim lifestyle.

Most Income Protection policies consider the life insured’s ability to work in gainful employment based on their usual occupation at the date of disability. However, many policies have now amended this criteria to an ‘any occupation’ definition once the customer has been on claim for a defined period of time (often 2 years).[9]

Changing the assessment criteria for a customer on an Income Protection claim from an ‘own occupation’ to an ‘any occupation’ definition is likely to cause uncertainty, which may not contribute positively to recovery and wellbeing. The more onerous ‘any occupation’ definition may restrict claim payments to the customer, even if they are still incapable of performing their usual occupation. This may result in very difficult conversations between advisers and their clients during the claims process.

MetLife has chosen a different path. Rather than managing long term risk by moving claimants from ‘own’ to ‘any’ occupation, MetLife is managing risk in three other ways: prevention via 360Health, rehabilitation and training via our Nourish Program, and if necessary, via a capability clause.

For more information, please speak to your MetLife BDM or click here to find your local BDM.

About Dr. Jeffrey Scott

Dr. Jeffrey has over 25 years experience in the insurance industry and is most notably credited for creating the first terminal illness benefit for life insurance products in Australia. He has also lectured on financial planning, taxation, superannuation and insurance at the University of Technology and the University of New South Wales – and is a regular media commentator on these topics, having conducted over 1,000 presentations in 13 countries.

[1] Actuaries Institute – Reference Product – Individual Disability Income Insurance – Disability Insurance Taskforce of the Actuaries Institute – Version 1.0 – April 2021.  https://actuaries.asn.au/Library/Reports/2021/IDIIDocumentC2.pdf.  Accessed 10 December 2021

[2] APRA – Final individual disability income insurance sustainability measures – Wednesday 30 September 2020.  https://www.apra.gov.au/final-individual-disability-income-insurance-sustainability-measures

[3] APRA – Final individual disability income insurance sustainability measures – Wednesday 30 September 2020.  https://www.apra.gov.au/final-individual-disability-income-insurance-sustainability-measures

[4] APRA – Final individual disability income insurance sustainability measures – Wednesday 30 September 2020.  https://www.apra.gov.au/final-individual-disability-income-insurance-sustainability-measures

[5] Actuaries Institute – Reference Product – Individual Disability Income Insurance – Disability Insurance Taskforce of the Actuaries Institute – Version 1.0 – April 2021. https://actuaries.asn.au/Library/Reports/2021/IDIIDocumentC2.pdf,  Accessed 10 December 2021.

[6] IRESS Risk Research – https://iressdirect.xplan.iress.com.au.  Accessed 10 March 2022.

[7] Modeling the Claim Duration of Income Protection Insurance Policyholders

Using Parametric Mixture Models – University of Melbourne

• https://fbe.unimelb.edu.au/__data/assets/pdf_file/0020/2592002/132.pdf;
• https://home.kpmg/au/en/home/media/press-releases/2020/06/joint-study-reveals-large-rise-life-insurance-claims-costs-22-june-2020.html;
• https://home.kpmg/au/en/home/insights/2020/10/life-insurance-insights.html;
• https://www.afr.com/companies/financial-services/insurance-set-to-spike-as-new-kpmg-fsc-data-shows-mental-health-claims-rising-20150604-ghgjes;

[8] IRESS Risk Research – https://iressdirect.xplan.iress.com.au.  Accessed 10 March 2022.

[9] Actuaries Institute – Reference Product – Individual Disability Income Insurance – Disability Insurance Taskforce of the Actuaries Institute – Version 1.0 – April 2021.  https://actuaries.asn.au/Library/Reports/2021/IDIIDocumentC2.pdf.  Accessed 10 December 2021,