Underinsurance Questions

What is the most significant factor preventing a greater take-up of life insurance by Australian consumers?

  • Adverse consumer attitudes towards life insurance and/or financial advice (44%)
  • General economic conditions and affordability (29%)
  • Other issue(s) (10%)
  • Product complexity - it's just too difficult (9%)
  • Life companies failing to learn from the lessons of the past (7%)
  • Adviser remuneration issues, including churning (1%)
  • Not sure (0%)

Our latest poll seeks to apply a perspective to the current debate on the quality of life insurance advice and conflicted remuneration issues, real and perceived.

We’d like to know what you think about why more Australians don’t have life insurance, or don’t hold sufficient cover appropriate to their circumstances. This question has been debated in many ways over a long period, but we want to your 2015 perspective on this nagging problem.

In a few weeks’ time, the industry will be awash with reaction to the recommendations set to be handed down by John Trowbridge, following his consultative process with the FSC/AFA-initiated Life Insurance and Advice Working Group.

It appears almost inevitable that remuneration for life insurance advice is set for a shake-up. The intended impact of any proposed changes will be to achieve a higher-quality life insurance advice process within an environment that removes or minimises any conflicted remuneration, real or perceived.

While advisers and all other industry contributors will have their own views about the Trowbridge recommendations when they are handed down, to what extent will any new adviser remuneration structures ultimately impact the underinsurance dilemma?

APRA’s Deputy Chair, Ian Laughlin, delivered a speech to the Actuaries Institute earlier this month, in which he sheeted a portion of responsibility for inconsistent industry sustainability to the performance of life companies and their failure to heed the lessons of the past (see: Staff Turnover Impacting Insurance Sustainability).

The life insurance industry… continues to struggle to find a way for its ‘value of life insurance’ message to cut through to the general population

Elsewhere, despite ongoing technology and process improvements initiated by the insurers, advisers continue to have issues around the difficulties associated with successfully securing cover for their clients. They regularly tell us there should be an easier way to get their clients covered without compromising the integrity of the underwriting and new business processes.

The life insurance industry also continues to struggle to find a way for its ‘value of life insurance’ message to cut through to the general population. The ongoing struggle to deliver this key message, combined with recent high-profile advice scandals, sees consumers continue to hold an adverse view of both the need for life insurance and the value of financial advice.

While short-term life industry debate will (rightly) focus on the Trowbridge recommendations when they are released, take this opportunity to stand back and ask yourself how the industry should best focus its energies if it is to genuinely collaborate on, and solve, Australia’s underinsurance problem…

 

  • Graham H

    It strikes me that the anti “Up Front” commissions debate is misguided and misinformed.
    If churning is the problems change the responsibility period,
    In typical fashion the so solved solution to the problem will be aimed at the adviser ( who did not create this mess to begin with) rather than the real culprits, the life offices, who have persisted in a lemming like race to the edge by implementing more unsustainable policy terms and conditions, lower premiums and a scant regard for the long term .
    Commissions are only part of the problem.
    But I suspect the soft target will again be the advisers.

  • Think another question should be asked, but it’s hard to know how to phrase it. My view is that dumbing down insurance or creating a framework where the consumer may be purchasing cover which doesn’t match their needs is a huge mistake. The only ones who benefit are the lawyers. You can’t beat good advice coupled with the adviser/ client relationship. At the same time the ability of an adviser to provide fairly simple risk advice is disappearing with over baring regulation which has pushed the cost of advice up or force some good advisers out of the business because they are struggling to cope. Unfortunately it seems that probably well meaning but poorly advised regulators will continue to drive an agenda which makes little sense to others with deep knowledge of this topic.

  • Maybe the reason could be:

    New risk insurance distribution models are making real engagement difficult.

  • Jeremy Wright

    Apathy is a determining factor for the massive under-insurance problem.

    Australians are bombarded thousands of times a day by Companies promoting Life Insurance products and it all becomes a blur to them until something happens in their lives that triggers a need.
    As an adviser, it would be fantastic if existing clients were able to increase their Insurances without the many hours it takes to comply with onerous regulatory and Insurer red tape that hinders our ability to do our job, which is to educate and provide appropriate levels of cover that an existing client should be able to easily attain.

    If Insurers and regulators are concerned about lapses, then make it easy for the existing, profitable Insurance policies to be increased.

    Having to fill in a 25 page application as well as hours of reporting for a $25 a month increase, is nuts and not profitable.

    The solution is so simple and has been spoken about many times, yet not one Insurer has bothered to listen.

    When a problem is pointed out and a solution is found, yet the purveyor ignores that sage advice, then the problem surely lies with the body that cried wolf.

    The world is full of organisations crying wolf, who then wonder why people stop listening when nothing seems to get done to fix the real issues.

    There have been many discussions, conjecture and meetings around this subject and the solution is staring the Life Companies and the regulators right in the face. Unfortunately, the solution must be invisible to them, though hopefully they may eventually begin to see, before the damage gets worse.

  • Thommo

    Once upon a time some lifie would visit a mum and dad, sit at the kitchen table and flog/provide a whole of life or unbundled policy, plus term, plus TPD, plus trauma. They were tied agents and had a 2 year responsibility period to receive full commission. As tied agents they had no incentive to churn, unless they changed providers. The had superior selling skills. Nowadays when you go for a home loan a borrower can wriggle out of any insurance review with ‘I’ve got all of that with my super’, which we know is untrue and inadequate.

    Maybe super funds need to inform their members that any auto acceptance insurance is probably inadequate and they should seek a review of their insurance needs.

  • Life Insurance product is not the problem, underinsurance is the problem. We somehow need to educate the consumer as to their real CAPITAL value. In other words they need to understand that the most valuable asset they have is their potential future earning capacity. No one in their right mind would insure their house but only cover 2 rooms out of 8 rooms .Affordability is not really a problem, a good financial planner will often find the premium for them by restructuring their affairs or by perhaps the consumer sacrificing one luncheon per week.

  • GregF

    Why does ‘Adverse opinions of Life companies’ get lumped in with financial advice? Plenty of people have been burned by insurance companies without having anything to do with financial advisers. In fact, sometimes this has happened because they didn’t have a financial adviser. Its becoming very obvious how this publication is trying to lead the dialogue!
    Apathy would have been a valid reason on its own that I guarantee would have got the majority of votes. Did the author not consider this a reason at all?