The Association of Financial Advisers (AFA) has issued a rallying call for the industry to undertake a collective, targeted and persistent communication campaign to address consumers’ distrust of life insurance.
The Association said that its latest round of consumer research, conducted by The Beddoes Institute with the support of BT Financial Group, had highlighted a trust gap between the public and the insurance industry. The AFA warned that while negative media coverage continued to reinforce consumers’ belief that insurers don’t pay claims, Australia would continue to have a significant underinsurance problem.
The research, summarised in the ‘Value of Protection’ White Paper, focused on the claims process and the difference between consumers’ expectations and actual claims experiences. As part of the study, the consumers and claimants were asked why they thought more people did not hold life insurance cover.
The respondents identified three barriers – denial, lack of trust, low awareness and poor understanding – which appear to be working together to drive down the perception of the value of life insurance, and therefore perpetuating the underinsurance problem.
‘The underinsurance problem in Australia is undoubtedly complex and multifaceted with the lack of trust of the insurance industry being a significant contributing factor. This, combined with an entrenched belief that “it won’t happen to me” and poor awareness and understanding of products, means that consumers devalue personal insurance which underpins the low uptake of cover,’ the AFA said in its ‘Value of Protection’ White Paper.
The participants were then asked what needed to be done to address the underinsurance issue. The vast majority of responses pointed to the need for a broad communication strategy, which educates consumers on the role of insurance, the types of products available, and the likelihood of something bad happening to them in the future.
BT’s Head of Life Insurance, Phil Hay, said he was not surprised that consumers were confused about insurance, acknowledging problems like the complex nature of the products and a lack of engagement from life companies once policies are in place.
When you talk about awareness, there are so many things that we, as an industry do, that just add to the problem
“Even as an industry, we refer to ourselves as ‘life insurance’,” Mr Hay said. “But that’s just 20% of the total products that are provided. When you talk about awareness, there are so many things that we, as an industry do, that just add to the problem.”
When asked whether life insurance providers needed to consider re-naming their products, Mr Hay said it had been discussed at the broader industry level.
“We use some old, hackneyed terms that no longer have any relevance. So I think that there would be a lot of support for changing the name of the products,” he said.
AFA CEO, Brad Fox, added that it was not just a matter of educating clients about the need for insurance, but also re-engaging with customers once they had purchased a policy, to remind them about the benefits and features.
“It needs a communication strategy. Even with people who are insured; there are people who don’t claim, even though they’re entitled.”
We haven’t done a very good job as an industry of communicating the value of advice
According to Dr Rebecca Shiels, who co-authored the White Paper, two out of the three claimants interviewed for the research did not realise they were covered. “In one case, the claimant was thinking: ‘How am I going to cope financially?’ for three months after being diagnosed with a serious illness. She was dealing with that worry and added pressure and anxiety, when in actual fact, she was insured.”
“We haven’t done a very good job as an industry of communicating the value of advice, and in particular, in terms of insurance, we haven’t done a very good job of showing the positive claim outcomes,” Mr Fox added. “The White Paper was initiated to test ‘What are the experiences?’ Do we live up to the promise; do we deliver on that?
“There is a gap here that we need to overcome.”
The AFA is currently presenting the findings from this, and other, consumer research at its National Roadshow series. Click here for more information.
