Planning & Life Risk

A guide to how we assess risk for income protection

By: Nic Smit – Head of Product and Pricing at FMI (a Division of Bidvest Life Ltd)

Why we developed Event Based cover

We at FMI believe that your ability to earn an income is your most valuable asset, and that everyone who earns an income should have income protection in place to protect them against the risk of being unable to work because of an injury or illness. 

However, there are many individuals today who can’t take out income protection because of the occupation that they perform. The three main reasons an insurer would decline to offer a customer income protection because of their occupation are:

  • They are at a high risk of being injured while performing their occupation. For example, oil rig workers, divers, and security guards.
  • Their occupation is highly sensitive to claim, i.e. they are highly likely to be deemed unable to perform their occupation because of relatively minor injuries or illnesses. For example, a musician may be unable to work for months because of a dislocated finger.
  • They don’t earn an actual income from working, for example, homemakers and full-time students.

While declining to offer a traditional income protection benefit to these occupations may be necessary for some insurers to manage the risks it accepts, it does mean that some income earners cannot protect themselves against any injury or illness. For example:

  • An oil-rig worker cannot get cover for accidents that happen to them while they are not working on a rig, or for any illness that they suffer.
  • A musician cannot get any cover for injuries or illnesses that happen to them, for any length of time.
  • A homemaker may not earn an income, but the impact on their spouse if they were unable to work is significant. It is likely that their spouse would need to sacrifice a large part of their income to replace the work that the homemaker performs.

Outright declining someone applying for income protection because a part of their occupation is too risky effectively throws the baby out with the bathwater. Insurers have to do this because occupational disability is a comprehensive claim criterion – it will pay for any injury or illness for as long as the life insured is unable to work in their own occupation.

This is why we at FMI developed Event Based cover as an alternative to traditional income protection. Instead of having occupational disability as a claim criterion on an Event Based policy, we list 200 events and define how long your clients will be paid for if one of these events happens to them. For high-risk occupations, we remove certain claim events from the list, or we exclude claims for injuries that happen while working.

We determined the 200 events that would trigger a claim on an Event Based policy by analysing over 20 years of claims on our traditional income protection benefits and determining what the most common causes of claim were. This helps to ensure that the list of events is a comprehensive list of the events that an individual is at risk of suffering. The list includes everything from the minor (for example, influenza for up to 14 days of payment), to the major (for example, stage 3 cancer for two years of payment). 

FMI’s Event Based cover means that instead of being outright declined, income earners who perform these occupations are now able to get comprehensive cover for most of the injuries and illnesses that would have an impact on their ability to earn an income.

This is in line with our core business philosophy and vision of protecting everyone’s income, no matter what they do for a living, and we continue to focus on and innovate in this area. 

If you’d like to find out more about how we assess risk for income protection, read other articles in our series – Why your clients’ income protection premium hangs on their occupation and Why your clients’ occupation affects life cover and income protection premiums differently (featured in the April issue of COVER).

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