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STRICTLY CONFIDENTIAL Deciphering the ongoing income challenge September 2014.

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Presentation on theme: "STRICTLY CONFIDENTIAL Deciphering the ongoing income challenge September 2014."— Presentation transcript:

1 STRICTLY CONFIDENTIAL Deciphering the ongoing income challenge September 2014

2 PAGE 2 Disclaimer Macquarie Life Limited (MLL) ABN AFSL 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 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.

3 PAGE 3 To cover active income. Our objective Robert Kiyosaki’s CASHFLOW Quadrant EMPLOYEE E You have a job BUSINESS OWNER B You own a system and people work for you S You own a job SELF EMPLOYED I Money works for you INVESTOR active v passive

4 PAGE 4 To cover active income. Our objective Robert Kiyosaki’s CASHFLOW Quadrant EMPLOYEE E You have a job BUSINESS OWNER B You own a system and people work for you S You own a job SELF EMPLOYED I Money works for you INVESTOR

5 PAGE 5 To cover active income. Our objective DOC 75% income replacement

6 PAGE 6 To cover active income. Our objective DOC 75% income replacement Active income covered

7 PAGE 7 Scenarios differ according to circumstances. Various scenarios All sorts of possibilities depending upon the individual business scenario DOC

8 PAGE 8 What is happening in the market? DOC

9 PAGE 9 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.

10 PAGE 10 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?

11 PAGE 11 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

12 PAGE 12 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

13 PAGE 13 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).

14 PAGE 14 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

15 PAGE 15 Claims durations Ongoing-income clause

16 PAGE 16 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

17 PAGE 17 OIC – Fact Sheet The partial disability formula is applied from first month on claim after the WP Ongoing-income clause

18 PAGE 18 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 ?

19 PAGE 19 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 ? 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.

20 PAGE 20 So what’s the best underwriting solution for this scenario? Solution DOC WP and BP Six-month OIC ?

21 PAGE 21 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.

22 PAGE 22 Alternative Short Term Solution In some cases…

23 STRICTLY CONFIDENTIAL The future is so bright…because together we can provide very real solutions to make a difference.

24 STRICTLY CONFIDENTIAL Thank you

25 PAGE 25 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

26 STRICTLY CONFIDENTIAL Thank you


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