An Older Australia
By Kevin Eddy | Vol: 38 Issue: 2 | Jul 2015
Life Health and Retirement Income
We’re all getting older – but we’re not the only ones. Australia, like many other nations, is staring down the barrel of a demographic gun. Over the next 40 years, the number of over 65s in the country is set to double, while the ratio of people of working age to retirees will almost halve.
Every aspect of our lives will change as the baby boomers – now in their 50s and 60s – move into their 70s, 80s and beyond.
The boomers’ golden years are set to be very different from those of their parents, however. On average, they are expected to live longer, healthier lives; are financially better off; and are keen to pursue an active retirement.
Insurance is one of the industries most affected by these demographic shifts. But what changes can we expect and how can the industry adapt?
Here are six areas of insurance and finance that may be most affected by the changing shape of Australian society.
1 TRAVEL INSURANCE
Travel is high on many retirees’ bucket lists, whether that means jetsetting across the globe or following the ‘grey nomad’ trail around Australia. Travel insurance cover has been a bugbear for seniors for some time, says Allianz General Manager of Corporate Affairs, Nicholas Scofield.
“It’s clear that older Australians feel that travel insurance doesn’t suit their needs as well as it could, especially around pre-existing conditions,” he says.
Part of the problem, says Nicholas, is that most travel insurance is an off-the-shelf product bought online through travel agents or given away as a credit card freebie, with only cursory attention given to the cover provided.
More appropriate cover for those with pre-existing conditions is available, he adds. And he believes communications around travel insurance should change to ensure older travellers obtain appropriate cover. The good news is that the loathed age-related premium hikes for travel cover are likely to disappear.
“Traditionally, travel insurance premiums have increased in steps at ages like 50, 55, 60, 65, 70 and so on. These have been material increases, too,” says Nicholas. “While there’s clearly an increased risk of accident or hospitalisation as you age, these increases can be seen as disproportionate.”
Instead, smaller premium increases on an annual or continuous basis are likely to be the dominant model in future. Several insurers, including Allianz, are already moving in this direction.
2 WORKERS COMPENSATION
With pension access ages rising, it’s inevitable that people will stay in the workplace longer as Australia ages – albeit with potentially very different work patterns. Even so, participation in the workforce at a later age will have an impact on workers compensation.
“Common accidents like slips and falls, or soft-tissue injuries from lifting items, could result in more significant injury for older workers than for a younger colleague,” says Nicholas.
Expect to see employers becoming more conscious of heightened risks over the coming years, with a greateremphasis on minimising claims cost and frequency. There’s also an opportunity here for brokers and other insurance professionals to advise clients on ways to improve risk management in the workplace.
3 VOLUNTEER LIABILITY AND PERSONAL INJURY
Liability and personal injury insurance for charities and non-government organisations is also an area that could see significant change as older people not in work, but who wish to remain active, volunteer in increasing numbers.
A May 2013 report by the Tasmanian Human Rights Commission criticised age-based exclusions in volunteer insurance policies – both in terms of reducing benefits after certain ages and refusing cover altogether. The commission noted that restrictions started coming into play for volunteers as young as 60. This issue is only likely to become more pressing, notes Nicholas.
“I anticipate these products will evolve in ways that don’t frustrate the efforts of organisations in recruiting volunteers,” he says. “However, the difficult part could be pricing and what that means in terms of affordability for non-profits.” Ansvar Chief Underwriting Officer Richard Wyatt recommends that volunteers ensure they are covered by an organisation’s public liability policy before carrying out any duties. He says Ansvar removed its age limits on volunteer workers cover, but does that volunteer duties take account of any physical limitations.
Richard adds that volunteers on charity boards should ensure they are covered against financial loss and that this is an area of growing concern.
“There’s an area of exposure developing around financial loss, which is one that people don’t think of in this area,” he says. “The same level of professionalism is expected from directors and officers of a charitable organisation as from directors of a commercial entity. It’s important to ensure directors and officers [D&O] insurance is in place, and this will become more important in future.”
4 ALLIED HEALTH INSURANCE
The issue of private health insurance and how it interacts with the public healthcare system is likely to be one of the major policy questions over the next few decades.
An older population means greater outlays on healthcare provision, and it is likely that governments will look to transfer the bulk of the burden onto private healthcare providers. A potential boom time lies ahead for health-related companies – including the fast-growing allied health sector.
The number and variety of allied health practitioners are growing – encompassing everything from acupuncture and nutritional advice to art therapy and yoga.
Underwriting agency ProRisk currently insures more than 30,000 allied health professionals from more than 400 different types of allied health practices.
The agency’s Business Development Manager Peter Marshall says this is only the tip of the iceberg. “Baby boomers are planning to have a long, active retirement. They’re keen to ensure they stay active and healthy,” he says. “Demand hasn’t peaked yet, and there is no shortage of new practitioners coming through.”
Peter flags brain health as a particular part of this sector that insurance professionals should watch closely.
He believes it will see massive growth in the coming years, as retired boomers try to keep their minds as active as their bodies. He also suggests cosmetic surgery as another growth area, since more cashed-up retirees may consider this option in order to look as young as they feel.
5 AGED CARE AND RETIREMENT LIVING
You only have to look at the property listings in the weekend papers to see that retirement living is in fashion. Annual revenues of $17 billion, annualised sector growth of 4.2 per cent and significant private equity investment suggest that this could be the growth industry of the next few decades.
The sector falls into two main strands: the ‘nursing home’ aged-care facility for those who need constant care, and retirement village units for those seeking independent living in a community setting. Richard suggests there are a number of insurance opportunities around both types of accommodation.
“A large part of cover revolves around property cover – there can be anything up to $50 million or $100 million worth of value in these sites,” he says. “The liability exposures can be a bit different, depending on whether you’re talking about aged care with nursing activity or a retirement village.”
In addition, Richard highlights a couple of unique insurance issues with retirement living.
“With independent living units, there’s potential for insuring residents’ private contents,” he says. “In addition, a major challenge with aged-care facilities is the issue of elder abuse. Most of that is financial; while it’s not very prevalent at the moment, as more people go into this area, we expect to see this become a larger issue.
“There is a rising trend of losses in that area, so it is something that families will need to be aware of.”
6 ESTATE PLANNING
Loss of mental and physical capacity may be some way off for most baby boomers, but it’s an issue that professionals – particularly insurance brokers – can raise with their clients now. Bills, including insurance premiums, can easily go unpaid if the elderly begin to lose their mental capacities. That can clearly leave seniors at risk.
Ian Westley, General Manager of Sales and Business Development at Equity Trustees, says he and his colleagues often find that “almost everything” has lapsed when they’re appointed to assist with a client’s affairs, or that cover is no longer sufficient. Occupancy clauses also go overlooked when struggling homeowners go into care, leaving the family home at risk.
Insurance professionals should be more proactive around this part of the market, urges Ian – especially as clients begin moving into their 80s and 90s.
“Keep an eye out for clients who are engaging with you less or no longer engaging at all, and check up on them,” he says. “Don’t wait until it’s too late, either. If you’re a broker looking at a potential client’s insurance needs at an initial fact-find or annual review, ask about estate planning. The advice and partnership opportunities that come through asking that simple question could be significant.”
While almost everyone understands that the world will change dramatically over the next few decades, it’s clear that few have a clear sense of exactly how it will change. The key for the insurance industry is to be prepared to anticipate and quickly respond to Australia’s changing demographics.
“The industry needs to get to grips with the idea that older people are changing and more insurable activity is happening,” says Nicholas. “There’s a sizeable and growing premium pool from that segment of the population.
“The successful companies will be those that can assess the risks and needs of older people in the most sophisticated way.”