Stephen Potter, chief underwriter at AIA New Zealand, says it’s an issue right across the business, from needing to rethink product design and underwriting guidelines to claims management philosophy and pricing.

And because consumers now have access to information and treatment options on an unprecedented level, insurers need to meet community expectations around products and services, Potter told a recent webinar organised by Financial Advice New Zealand.

“With all that information comes an expectation from people who purchase our products and services that we do more and do better while trying to keep the price relatively stable. That community expectation, and what is demanded of us, is increasing.”

For example, community expectation, along with more advanced treatments, forced AIA to update its definition of a heart attack. The old definition required a full blockage of the coronary artery, leading to disputes between insurers, policyholders and cardiologists as the insurance definition differed from the medical definition.

“From a product perspective, in an effort to meet community expectations and in an effort to remove what was at the time a lot of disagreement around a doctor telling person he’d had heart attack and the insurer saying it wasn’t severe enough, we’ve altered the definition,” Potter says.

AIA now pays for a partial blockage of the main artery or a full blockage of a minor artery.

“But the law of unintended consequences [means] we’re paying fairly high sums assured in some areas for events that are no longer as severe as they were historically,” Potter says.

“So, the severity of the heart attack is less, the length of time in hospital is less but the financial reward for being there, when trauma in this market [is] funded up to $2 million, has not changed. So, we have this mismatch which is putting enormous pressure on trauma rates right across the industry.”

Nobody wants to put premiums up, Potter says, “but the pace of change and the unintended consequences of the pace of medical advances have led to these sorts of issues”.

Another bone of contention is PSA screening for prostate cancer. Despite increased testing, mortality has decreased only marginally, Potter says. While men with a level above 4 “probably do need some sort of urological review”, in his view screening should begin no earlier than 50 and stop at 75, although family history and other genetic predispositions need to be considered.

Because an elevated PSA is common, dealing with it poses a big question for underwriters. “In the absence of a formal diagnosis, from an underwriting perspective, what does that mean? How are we supposed to deal with that?”

For those with trauma cover, and the expectation that a raised PSA could lead to cancer, “maybe we’ve got to exclude prostate cancer from the contract, notwithstanding that there is no formal diagnosis. 
“All we’ve got is the elevation which could be something else. Ideally, what we need is a test with high level sensitivity and specificity to tell us what’s going on. In the meantime, as underwriters, we’re left simply going ‘what am I working with? What are the odds of this being something other than what I think it looks like?’ This is the stuff that becomes really challenging.”

Dr John Mayhew, AIA’s chief medical officer and the former doctor for the All Blacks and the Warriors, says people are living to an expensive old age. As a rule of thumb, 80% of the health budget is spent on people with less than a year to live.

In his view, the biggest advances over the past 20 years have come from improved public health measures - food and housing, clean water and vaccinations. But that’s not the whole story.

Better treatments and screening mean many cancers can be diagnosed before they become symptomatic. Disease like hepatitis C and HIV/Aids can be controlled, and better treatments and diagnosis for cardiovascular disease mean fewer people are dying from heart attacks and strokes. And technologies such as defibrillators, 3D printers and robotic-assisted surgery mean morbidity and mortality from once-fatal diseases has dropped.

But treatments need to be based on hard evidence, Mayhew says. For example, osteo-arthritis of the knee was once treated by arthroscopy, but the outcomes were often worse than doing nothing. Ditto lower back pain. “Unless there are very clear-cut indications, surgery doesn’t really have a place here,” he says.

The challenge for insurers is whether their product definitions match the illness and treatment.

“Has our underwriting treatment kept pace?” Potter asks.

“How do we manage all these new pieces of information while keeping the underwriting process as simple as possible, as frictionless as possible and making sure we’re meeting all the expectations of existing policyholders who expect us to responsibly manage new business and to make sure claims are not disproportionately happening and driving the price up for everyone? And what about conditions that aren’t covered?”

Insurers seem to be moving from product manufacturers to services providers, he says, in the way they interact with customers. “And how do we work with advisers to provide assisted heath in a world that’s changing incredibly fast?”