Consumers Cautious on Cost of Advice, Premiums

Less than three per cent of consumers would be willing to pay $1,000 or more for life insurance related financial advice, according to research from online insurance provider, NobleOak.

In a recently released research whitepaper, Life Insurance in Australia – Consumer Behaviour Transformation, NobleOak found consumers had become price sensitive and many were unwilling to pay for advice and made the decision to not continue with insurance or not purchase cover at all, based mainly on price.

The research, conducted in December 2017 by Pureprofile Australia, covered more than 1,000 people between the ages of 30 and 60, of which more than half had a current life or income protection policy.

Of those surveyed,

  • 55.9 per cent were unwilling to pay anything for life insurance related financial advice
  • 23.7 per cent said they would up to $100
  • 15.2 per cent would pay up to $500
  • 2.6 per cent would pay more than $500
  • 2.7 per cent would pay more than than $1,000

NobleOak stated the findings pointed to a problem with the perceived value of life insurance advice and presented “…a significant challenge for financial advisers who often need to fund high upfront advice costs to provide the right advice under strict compliance rules to their clients”.

“Price continues to gain momentum as the determinant of choice for many consumers when it comes to life insurance…”

“Clearly illustrating value to clients has always been a challenge for many advisers, and with the increasing access to online information and resources that consumers have, this is getting even harder,” the paper stated.

Price was also the key determinant in purchasing cover with 80.5 per cent of respondents stating the cost of premiums was the most important factor when purchasing life insurance, well ahead of features and claims reputation at 57.1 per cent and 52.9 per cent, respectively.

The survey also found that when respondents were asked why people don’t buy life insurance, 44.7 per cent believed it was due to its high cost, while 49.4 per cent of respondents that had life insurance but did not plan on keeping their policy said high costs were the reason for their decision.

“Price continues to gain momentum as the determinant of choice for many consumers when it comes to life insurance and income protection cover,” the paper stated.

“In the absence of any significant innovation, products are becoming commoditised as consumers’ increasingly opt to deal directly with insurers online rather than seek financial advice,” it added.

“It appears that legislative and regulatory parameters have limited the ability for life insurers to differentiate their products in a way that is truly meaningful to the customer. So the customer is attracted to value, comprising largely of low price, good reputation and some product features.”

  • paulkate72

    There isn’t much surprise in NobleOak’s finding here. It does seem that the life insurance industry as we’ve known if for more than a century will soon be gone forever. Replaced by financial planners who can offer a one-stop service. This could well be a good thing, but it is sad to see the death of an industry, along with those who’ve championed it and delivered such excellent service for so long.

  • Jeremy Wright

    It is ironic, that advisers, who are the people who work closest with clients, have
    had extensive consultations and were repeatedly told by them that Australians are
    prepared to pay from NIL to less than $500 for advice, which was clearly articulated to all and sundry, yet these facts were ignored by the industry and the theory guru’s.

    Then, after the damage is done, with regulations that were based on lies and
    mis-truths, we now have research that finally tells the truth which is, 95% of
    Australians will pay NIL or not a fraction of what it costs to provide full advice and implementation.

    Sue, Vicki and Chris, you have been selling your stories and services stating the
    exact opposite.

    What do you have to say about this research that confirms our research, which you continued to ignore?

    However, the big story should be, which Life Companies will do the right thing and not increase premiums in the first 2 years.

    It is not in anyone’s best interest when a Life Company increases the premium by
    15% and the client cancels, causing either a 100% or 60% write back against the
    Life adviser practice.

    If the Business costs are $3,000 to provide the advice and implementation and the
    commission is $3,500 with a $3,500 write back, it is not a zero sum equation,
    it is a $3,000 loss to the adviser business caused by the Life company who are
    responsible for the lapse.

    Can Risk info put forward a poll that asks:

    “Will you (the adviser) write business with the Life Companies that will not increase
    client premiums in the first 2 years, (apart from standard age and indexation rises) and would you want this in writing?

    Yes / No / Not Sure

    Adviser practices have been forced into a very bad position by the likes of the FSC who have no loyalty to anyone but their masters, so it is up to advisers to only support those Life Companies who will have the decency to put in writing that they will help advisers by not causing lapses through premium rises in the first 2 years.

    • paulkate72

      Worthy and noble sentiments, Jeremy. But unlikely to be welcomed into the bosoms of the majors I think.

      • Squeaky_1

        Yes Paul, Jeremy usually nails it in one! He’s probably one of the very few advisers with the combined talents of articulation, clear thinking and passion required to rally the troops and lead the fight for all advisers before it is too late – maybe already is . . . sadly I think it may be. I have no doubt advisers would rally around such a charismatic and talented leader if somehow a system was created to make it relatively easy to show and demonstrate support for such a movement. I think there could be great power there. BTW, I’d love to see that poll he suggests – how about it ‘Risk Info’?
        On your point of welcoming it “into the bosoms of the majors”, well, my general impression is that the majors have given up on adviser support, despite their words of love and support at regular PD days. I’ve seen unmistakable signs they are on to the next phase of their ‘Advisers-Out’ strategies. Personally, I think many top line execs at life companies don’t want life advisers to be the distribution force any longer. I think they want it all done by magic – the Robo-advisers – and without having to pay commissions AT ALL. I would love more than anything to be shown how I am misguided on this but, alas, They will use the previously paid commissions (or part thereof) to pay the compliance division to keep them safe while they dispense general advice “in the client’s best interest” of course. It may be just easier for us to sit and say “Roll on, 2024” than fight this. From their actions (not their words!) it seems clear this is what life companies want enmasse.

  • ken

    Well how about that !! I bet you didn’t see that coming ???
    This is what the industry risk writers have been telling the FSC ASIC THE INSURANCE COMPANIES and all the others that apparently had some kind of crystal ball that said “Don’t worry about charging fees clients will be happy to pay it!!} When in reality the only winners here are the insurance companies and bank owned entities.
    They get to keep everything in the first 12 months including any premiums paid. They get to keep 60% of everything in year 2 including premiums paid. Oh!! and increase premiums by up to 30% the clients wont care??. We now only get paid 80% another saving for our share holders and management to carve up. And for all this we get to establish the business seek out the best products for the job confirm the advice has been thoroughly researched complete the application after we have spent valuable time putting the SOA together for approval perhaps seeing the client two or three times to get it right servicing the client assisting with client issues questions queries and claims and then showing them what we receive to ensure they don’t think we are paid too much for our work. I’m sure I missed plenty but you get the idea Good luck to anyone starting out in this industry.

  • Robert Coyte

    Politicians encouraged by regulators, FSC and the main adviser professional organisations implemented changes without any due process or review of any impact that the recently implemented FOFA changes may have had. I hope these advocates are as fervent in discussing the collapse of advice in this area and the problems it will create as they were ensuring the insurance companies and banks got a stranglehold on this market to the detriment of the consumer.

    Tax payers and society in general as they are left to mop up the mess left by this debacle.