Australia’s underinsurance problem is the result of a lack of action on the part of the consumer, not a lack of awareness, according to research commissioned by the Financial Services Council (FSC).
Produced in partnership with MetLife, the report, entitled ‘Apathy to Action’, identified that the vast majority of Australian adults recognise the need to protect their assets and income. However, an awareness of the risks is not enough to motivate most consumers to purchase insurance, the research found.
According to the study, 90% of working-age Australians say they have thought about the financial impact of loss of income for the main income earner due to ‘life insurance events’ (illness or injury, disability or death). In addition, 71% of those who have thought about the impact of income loss agree that it’s their responsibility to ensure their family can keep living.
…an awareness of the risks is not enough to motivate most consumers to purchase insurance
But despite this consideration, less than half (47%) said they had taken any action to try and plan for a loss of income.
The researcher, GfK, then investigated what would motivate those consumers without life insurance to take out a policy. GfK found that while the vast majority of existing life insurance messaging focuses on the risk of a negative life event occurring, this type of communication does not resonate with non-policy holders.
‘We asked consumers what they would do if there was a 25%, 50% or 75% chance that in 12 months’ time they would have to stop working for at least six months because they were sick or injured,’ GfK said in its report.
‘For those that already have income protection insurance, an increased chance of having to stop work led to a change in behaviour: at a 25% risk only one in four said they’d look to increase their cover, increasing to tow in five if the risk was 50%, and one in two if the risk was 75%.
‘For those who don’t have income protection insurance there was no difference in behaviour at different levels of risk. At all levels of risk, only one in four of those who do not have income protection insurance said they’d look into getting cover, just as many said they’d start saving and just under half said they’d do absolutely nothing.’
In contrast, the top three messages that did resonate with non-policy holders, and were most likely to motivate them to take out life cover, related to financial savings:
- A tax incentive provided by the government
- A tax dis-incentive (ie: a minimum level of cover must be held to avoid paying extra tax)
- Cover provided inside superannuation so that there is no impact on the person’s day to day income
MetLife CEO, Damien Green, said the report countered the traditional life insurance industry hypothesis that Australians don’t understand risk.
“This report challenges that. It says that Australians do understand risk. For example, 19 out of 20 Australians confirm that ensuring that their family has sufficient funds to live, following some sort of life event is a concern. The issue is that they’re not motivated to act on that concern.
“The life insurance industry has focused historically on selling the fear of financial disaster. This body of research actually shows that doesn’t motivate people to act on the risks that they see. So the call to action for the industry is to start positioning and communicating more positively on protecting lifestyle, versus selling death and disaster.”
He also pointed to the opportunity that exists for the group insurance market:
“Group insurance through super has copped a flogging in the past 12 months. I think that’s put us on the back foot in terms of the opportunity that we have to solve these issues, via this incredibly efficient and broad distribution platform.
“Australia’s group insurance industry – the platform for taking insurance to people through our superannuation system – is world class. The ability to get to a population, broadly and efficiently, to offer a level of protection is unprecedented. I don’t think it exists anywhere else in the world. This report quite rightly points this out as being a key opportunity, and one of three priorities we (the industry) need to focus on to get more insurance to working Australians.
“The real challenge for the superannuation industry now is to get back on the front foot, in partnership with their insurers, and start engaging individuals.”
And if persistent passionate lifies didn’t push, shove, cajole apathetic ozzies then the cover would be significantly less…. God bless lifies and shame on those who accuse us all of churning …
What you said here is true, John. We’re often accused of being pushy but if we didn’t exert some pressure to act NOW, underinsurance in the land of ‘she’ll be right, mate’ would be super-acute. Yes, not everyone could do our job.
Income protection and all life Insurance products would be much easier to sell if two things happen.
1. The Government gives all Australians a $2,000 Tax deduction to set up a Financial plan.
2. The foundation of every plan will include the Insurance framework that will enable people to achieve their goals of home ownership and investing for their future, while sticking to a budget.
People will buy Insurance if it is part of their financial goal of building wealth and owning their home, which is far more exciting, less threatening and dare we say, “not Insurance” but part of my wealth planning strategy.
The FSC and Metlife report is correct and the Government needs to understand that a $2,000 tax deduction will not be a cost to tax revenues, it will create Billions of dollars of necessary cover to Australians, educate people to proper budgeting, inject life back into the economy and create additional Billions of revenues which will put our country back on the right path.
And guess what? The apathy around Insurance will no longer be a problem, as the cover is now a part of every persons overall financial planning strategy.
If Income Protection was a $1 per annum for cover of 75% of pre-disability income, we’d have 100% coverage!
The problem is that it’s too expensive, forking out $3K p.a. for “nothing” in return.
Because Insurers are unwilling to tackle the medico-legal stranglehold on disability Insurance, they generate opportunistic claims which means no-one can any longer insure himself for his own risk. Income Protection would be totally affordable if Insurers mitigated doctors and lawyers influence on disability durations.
Insurers will go down the tubes before they address this issue in any real way.
I may be a bit thick here, but I’m not following you, John. How have GPs and lawyers had such an influence on IP?
Are you meaning that litigious lawyers look for loopholes in clients’ IP contracts etc to see if they can wrangle some cash from insurers when they really haven’t got grounds? Perish the thought! Lawyers would never stoop to such a low sink!!
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