In this article, the final in a three-part series, BT’s Crissy Demanuele continues to break down the elements of what constitutes valuable life insurance advice, turning her focus on research comparisons and underwriting pre-assessments…
In the first and second articles in this series, we discussed the following factors which advisers may weigh up when assessing a client’s life insurance needs:
- Premium comparisons
- Relevant product features
- The amount of cover required to meet the client’s financial goals
We now round off our discussion with a look at how research comparisons and underwriting pre- assessments can assist advisers in the life insurance advice process. We will also discuss how advisers can gain a better understanding of how claims may be handled in the future by considering the previous claims history of different insurance providers.
These various elements of life insurance advice are also the subject of ASIC’s review of retail life insurance advice, Report 413. However, instead of taking a compliance perspective, we focus on the practical steps that can be taken to ensure that life insurance advice is well-researched and considered – and when advice is presented in this clear and comprehensive way to clients, they may appreciate the benefits of obtaining tailored financial advice more easily.
Research houses
Ratings houses and risk researchers provide tools which can assist advisers with comparing different insurance products and product features, including legacy products which clients may currently have. Generally speaking, risk researchers will score products based on certain variables. A higher score potentially means that the product may be more comprehensive.
Business development managers and other support staff at insurance providers may also be able to assist advisers, as they can explain the product types and features in detail.
Underwriting pre-assessments
Underwriting pre-assessments can provide advisers with an upfront indication of how a client may be underwritten based on any medical issues they may have, their financial details, occupational assessments, as well as their pursuits and pastimes, travel and residency. Obtaining an underwriting pre-assessment can potentially assist in deciding whether one product or another is the best fit for the client. Pre-assessments may assist to form part of the decision as to whether or not the client should change to a new product provider.
In some instances, clients may have existing cover in place which was taken out when they were fit and healthy, with no exclusions or loadings; but since taking out that policy their circumstances may have changed. If they take out new cover, they may only be offered cover on substandard terms, or may have a loading or exclusion applied to their cover. Their occupation and/or financial details may have also changed, and this may result in them being offered lower levels of cover. For example, they may now have a chronic bad back, and if they were to take out new cover they would have an exclusion on the new policy.
However, pre-assessments are just part of the overall picture, and an underwriting pre-assessment alone should not be the only deciding factor. Obtaining pre-assessments from different underwriters should not necessarily be prioritised over obtaining and setting up the insurance. It is more important for clients to have the appropriate cover in place as soon as possible. It’s also important to note that, while pre-assessments can be informative in the decision-making process, they are not binding.
Previous claims history
The claims history of different providers may also provide an insight into the likelihood of an insurance provider paying claims in the future. The ASIC Moneysmart website provides a tool which compares how life insurance companies have handled claims and claims-related disputes in the past. This includes the policy cancellation rates. This may provide some guidance on whether one insurance provider may have a stricter policy definition, for example, or may provide some insight as to how long a particular insurer may take to pay out claims.
Click here to access the ASIC MoneySmart claims comparison tool.
Conclusion
When providing advice to clients in regards to their life insurance needs, advisers must conduct reasonable research into various life insurance products. This may include information gathered in relation to how a client may be assessed from an underwriting viewpoint. It is also necessary to understand the client’s circumstances, financial goals and objectives.
There needs to be documented evidence to show why a particular insurance product was recommended over other products. Particularly where an in-house product is being recommended, the advice documentation must include evidence as to why that product is more suitable to a client than other products. Advisers need to keep detailed file notes and ensure that the client’s statement of advice describes the client’s individual circumstances.
Research tools and the claims history of different insurance providers may assist when comparing different product providers.
Across three articles, we have considered the fundamentals of life insurance advice through the lens of regulation and compliance. While regulatory or compliance frameworks require careful navigation, they also provide useful guidelines on providing valuable advice that can build trust and lasting client relationships.
Crissy Demanuele is Senior Product Manager, Life Insurance, BT
