Partners Papers
The birth of Trauma Cover
Long before Trauma Cover came into the world,
there existed only Life Insurance. The concept of Life
Insurance isn’t just old, it’s ancient! While the world’s
first official Life Insurer was founded in London in
1706, the concept of ‘pooling risk’ to help support the
surviving relatives following the death of an income
earner dates as far back as the Roman Empire.
In the 1900s, the life expectancy for an average adult was
in the 40s, with the survival rate of common diseases such
as influenza and pneumonia being very low and as such Life
Insurance had become a very popular product – this type of
insurance was considered the only type required as a death
benefit would almost certainly be paid if you were unlucky
enough to contract any sort of serious illness.
Throughout the 20th century, the science of medicine rapidly
developed with important discoveries such as vaccines and
antibiotics. Conditions that were previously considered fatal
became treatable, or even curable.
Life expectancy increased a great deal during this time, as
did the incidence of heart disease, cancer, and stroke, given
people were living long enough to suffer from them. While
these conditions were also becoming more treatable, they
were still almost certain to have a long lasting, disabling
impact on the sufferer’s ability to live their usual life,
including earning an income.
In the late 1960s South African heart surgeon, Dr Marius
Barnard, participated in the world’s first human to human
heart transplant – a revolutionary advancement in medicine.
Shortly after his medical breakthrough, Dr Barnard would
prove the catalyst for a revolutionary breakthrough in
personal risk insurances as well.
“I was used to operating on people and boasting about my
great results of patients surviving five or six years. But all of
a sudden I saw the social and financial implications. I knew
nothing about insuranc e but I knew life insurance paid out on
the diagnosis of death. But to me, my patients lived for years
but, in this time they died financially.” – Dr Marius Barnard
During the 1970s and early 1980s, Dr Barnard personally
witnessed many examples of patients surviving serious
illnesses through major surgical intervention only to be forced
to immediately return to work due to a lack of any sort of
financial support. Forced back to work when they should
have been recovering, Dr Barnard had to watch his patients
essentially ‘working themselves to death’. While there were
rudimentary income replacement style policies available
for illness and injury, there were no lump sum insurances
available to cover the significant additional financial burden of
serious health conditions.
It was during this period that Dr Barnard first formulated the
idea of a policy that would pay a lump-sum benefit upon
the diagnosis of the four most common critical illnesses at
the time: cancer, heart attack, stroke, and coronary bypass
surgery. In 1983, Dr Barnard, along with the South African
insurance company, Crusader Life, first brought this policy to
the market – coined Dread Disease insurance. The definitions
of illnesses Dr Barnard developed for this initial Dread Disease
cover still form the basis of many current policies, now more
commonly known as either Critical Illness or Trauma Cover. By
the turn of the century Trauma Cover was being offered by
insurance companies worldwide.
Modern Trauma Cover
In the years following mainstream adoption and the
widespread availability of Trauma Cover, the practice of
medicine has continued to evolve at an increasingly rapid
pace and as such, Trauma products have also evolved
dramatically from their beginnings as ‘Dread Disease’
insurance.
The average life expectancy for New Zealanders as of 2016 is
estimated to be 83 for women, and 79 for men. Because of this
expectation of longer lives which are more likely to be interrupted
with survivable health events, Trauma cover, which pays a benefit
upon diagnosis of a serious health condition, is increasingly being
considered equal in priority to life cover policies which pay only
upon death or terminal illness.
Over recent years the cost of Trauma Cover has increased
significantly in line with increasing claims experience.
Increased claims experience (meaning increased chances of a
claim being paid), is due to a combination of:
l Advancements in medical treatments creating better
survival outcomes for people diagnosed with serious health
conditions, leading to increasing trauma claims; and
l The advent of advanced screening and diagnostic tests which
can detect the presence of health conditions much earlier
than was possible during Dr Barnard’s days as a prominent
surgeon, leading to earlier trauma claims; and
l Competition in the Trauma Cover market leading to significant
product improvements and innovations. The original four
covered conditions – heart attack, cancer, stroke, and coronary
bypass surgery – have now expanded to the point where the
majority of Trauma Cover products in the market cover more
than 40 specific critical health events. Now, you can expect
to be covered for neurological conditions such as Alzheimer’s
and Parkinson’s Diseases; disabilities such as blindness or
paralysis; and general serious health events, such as end-
stage organ failure or being comatose or in intensive care for
a certain length of time; and
l In addition to the main critical illness benefit, it’s becoming
increasingly common for Trauma products to also offer
additional benefits. These can include automatic cover for
your children, help paying for your flight home if you’ve
been working overseas prior becoming ill/disabled, or even
funding for financial planning advice to help you manage
your lump-sum claim.
The effect of all of this development in both medicine and
product is that Trauma Covers can now end up paying claims
even when a person’s life is not significantly impacted by the
diagnosis of the condition, meaning in some circumstances a very
large payment might be made when there has been no financial
impact at all. While this can seem like a real windfall, there is a
conflict in that premiums must increase to cover these ‘windfall’
claims, reducing the affordability of the product and therefore the
protection against the more significant health catastrophes that
the product was initially designed to cover.
Clearly Trauma Cover is an extremely valuable product, with
the potential to be a life-changer, or even a life-saver when
unexpected health catastrophes arise. With that in mind, it is
important to consider how Trauma Cover fits into a portfolio of
benefits to ensure you have the best mix of protection to suit
your own personal budget – something your adviser is there to
help you with.
The Future of Trauma Cover
As previously mentioned, the increasing cost of
Trauma Cover presents some real issues for insurance
companies, financial advisers, and customers alike as
the basic need for financial support on survival of a
serious, life impacting health event is just as relevant
today as it was in the 20 th century. To this end Partners
Life has been at the forefront of developing several
innovative new products for use in conjunction with,
or in place of Trauma Cover to help bridge the gap
between a person’s needs, and what they can actually
afford to pay for.
0800 14 54 33
There are other types of insurance products widely available
that cover a similar, but slightly different financial needs
to Trauma Cover. Two such examples of these are medical
insurance and income protection insurance.
Medical insurance provides immediate access to, and funding
for, top of the line medical procedures, treatments, facilities
and professionals. In most cases, medical insurance policies
do not pay a lump sum on suffering a serious medical illness,
however the availability and funding of exceptional health
care can reduce the financial impact of those illnesses, and
as a result, the requirement for a lump sum payment may
be lower.
Income protection types of insurance – which includes
Mortgage Repayment, Household Expenses, and Income
Cover – pays a benefit where an individual is unable to work
due to illness or injury. These policies provide a regular income
stream during the recovery period, helping to alleviate the
financial need to return to work immediately, and some,
like Partners Life’s, do include a smaller, immediate lump
sum payable upon diagnosis of certain Critical Illnesses.