strictly confidential deciphering the ongoing income challenge september 2014
TRANSCRIPT
STRICTLY CONFIDENTIAL
Deciphering the ongoing income challenge
September 2014
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Disclaimer
Macquarie Life Limited (MLL) ABN 56 003 963 773 AFSL 237 497 is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Cth) and MLL’s obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MLL.
The Macquarie Life Active and FutureWise product disclosure statements (PDS) is to be issued by MLL. The PDS should be considered before deciding to acquire or to continue to hold the product.
This information is provided for the use of licensed financial advisers only. Financial advisers are prohibited from passing on this information to any retail client. In no circumstances is it to be used by a potential client for the purposes of making a decision about a financial product or class of products.
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To cover active income.
Our objective
Robert Kiyosaki’s CASHFLOW Quadrant
EMPLOYEE
EYou have a job
BUSINESS OWNER
BYou own a system and
people work for you
SYou own a job
SELF EMPLOYED
IMoney works for you
INVESTOR
active v passive
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To cover active income.
Our objective
Robert Kiyosaki’s CASHFLOW Quadrant
EMPLOYEE
EYou have a job
BUSINESS OWNER
BYou own a system and
people work for you
SYou own a job
SELF EMPLOYED
IMoney works for you
INVESTOR
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To cover active income.
Our objective
DOC
75% income replacement
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To cover active income.
Our objective
DOC
75% income replacement
Active income covered
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Scenarios differ according to circumstances.
Various scenarios
All sorts of possibilities depending upon the individual business scenario
DOC
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What is happening in the market?
DOC
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Equivalent EAV benefit 75 per cent of income is replaced
What is happening in the market?
DOC
Likely over insurance and potentially poor claims experience
Traditionally nothing has happened.
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Push the waiting period out.
Equivalent EAV benefit 75 per cent of income is replaced
WP and BP
DOC
Possible under insurance in month three, however thereafter it’s likely over-insurance and potentially poor claims experience
What is happening in the market?
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Push the waiting period out further.
Equivalent EAV benefit 75 per cent of income is replaced
What is happening in the market?
WP and BP
DOC Possible
under insurance in months three, four, five and six, however immediately thereafter it’s likely over-insurance and potentially poor claims experience
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Apply a traditional offset.
Offset to a maximum of 75 per cent of pre-disability income
Offset benefit
Off-set
DOC
Maximum benefit payable combined with ongoing income is 75 per cent of pre-disability income
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The partial disability formula is applied from the seventh month on claim after the WP
Ongoing-income clause
Six-month OIC
DOC
Potential over-insurance in the first six months - that can lead to poor claims experience
A – B x mb A
Apply a six-month ongoing income clause (OIC).
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Apply a six-month OIC with a 90-day wait.
The partial disability formula is applied from the seventh month on claim after the WP
Ongoing-income clause
Six month OIC
DOC Possible under-insurance in month three then potential over-insurance in the next three-six months - that can lead to poor claims experience
A – B x mb A
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Claims durations
Ongoing-income clause
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Apply a full OIC.
The partial disability formula is applied from first month on claim after the WP
Ongoing-income clause
DOC
Possible over insurance in the first few months, however it’s only minimal
A – B x mb A
Full OIC
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OIC – Fact Sheet
The partial disability formula is applied from first month on claim after the WP
Ongoing-income clause
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We recognise there are lots of potential different possibilities.
These depend upon a number of key factors:
What are Macquarie doing that is different?
DOC
So we need to ask the right questions at underwriting so the underwriters can determine the best solution
WP and BP
Six-month OIC
OIC
?
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It starts with understanding the business better and how the business generates its income.
In the event the client is unable to work due to injury or sickness:
So what are the right questions?
1. Would the business be likely to continue?
2. Would the business be likely to continue AND generate revenue?
3. Considering the nature of the business and the likely fixed infra structure type costs in the business would the level of revenue that continues to be generated likely to be such that the business will continue to generate a profit (after add backs)?
WP and BP
Six-month OIC
OIC
?
If the answers to all 3 questions are YES there is an ongoing income challenge that needs to be managed by underwriting. So it’s important to provide underwriting with as much information as possible so underwriting can determine:
1. What the most likely ongoing income scenario is; and
2. The best solution for this scenario.
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So what’s the best underwriting solution for this scenario?
Solution
DOC
WP and BP
Six-monthOIC
OIC
?
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Apply the full OIC.
Solution
Full OIC
DOC
Remember, in the worst case scenario where the business is sold or goes under and post disability income is nil, the full benefit is payable
A – B x mb A
The best underwriting solution in this scenario.
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Alternative Short Term Solution
In some cases…
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The future is so bright…because together we can provide very
real solutions to make a difference.
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Thank you
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Definitions
There are a number of different acronyms and abbreviations used in this presentation which are explained here
A – Pre-disability Income
AV - agreed value
B – Post-disability Income
DI - disability income
DOC - date of claim
EAV - endorsed agreed value
mb - monthly benefit
pa - per annum
pm - per month
RCD - risk commencement date
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Thank you