Two industry groups representing advisers have issued warnings regarding direct insurance while commending ASIC for its recent report into declined claims, which highlighted problems with the direct and group insurance sectors.
The Association of Financial Advisers (AFA) and the Life Insurance Customer Group (LICG) both pointed to ASIC’s recently released Report 498 stating that a close examination of the report highlight the benefits of advised life insurance compared to other channels.
AFA National President, Marc Bineham said the report indicated that consumer outcomes from direct and group life insurance did not measure up when compared with consumer outcomes from life insurance cover arranged by a professional financial adviser.
He also stated the report provides an opportunity for the life insurance and financial advice sectors to get on the front-foot and move towards greater public trust and understanding of life insurance.
“The Report was comprehensive and we commend ASIC for its wide-ranging investigations across the entire life insurance sector including group, direct and advised,” Bineham said.
“The Report gives the industry a chance to participate actively with the Government and regulator in this review and thereby earn the right to hold its social licence with the people of Australia,” he added.
“The Report gives the industry a chance to…earn the right to hold its social licence with the people of Australia”
Bineham said that of the $7.2 billion in life insurance claims paid in 2015, 70% of those claims were paid via the retail life insurance channel, proving the value that financial advisers deliver to clients, particularly when advised policies have stronger insurance contracts and represent better value than policies accessed by buying direct.
He said this led to better claims outcomes than for group and direct insurance since advised retail life insurance was underwritten at application time and was actively managed by an adviser at claim time.
Despite recently being at odds with the AFA around the issue of supporting the pending Life Insurance Framework reforms and legislation, the LICG was on the same page as the AFA on Report 498 welcoming its release and stating it was the first report of its kind to compare all three distribution channels.
The LICG said it was concerned that claims from the ‘None Advised’ (Direct) distribution channel were 71% more likely to be denied than if a policy had been sourced through the Retail (Advised) channel, while a claim on a group policy was 14% more likely to be denied compared with a retail policy.
In making this claim, the LICG pointed to ASIC data which showed that while accepted claims ran at around 75% for all three channels, direct insurance declined 12% of all claims compared with 8% of claims declined for group life and 7% declined for advised life insurance.
The group stated that while there had been anecdotal evidence of these differences there had never been any factual industry wide data to prove it and ASIC had used its powers to reveal this data for the first time.