An expansive report released by MetLife this week on the role of Australia’s life insurance industry includes a clear statement of support for the retention of risk commissions, together with a fact-based analysis that dispels some of the commonly-held misconceptions about life insurance in Australia.
These two issues reside within a broad-based Value of Life Insurance Report, which considers the role of the life insurance industry in Australia across three main categories:
- The economy
According to a statement accompanying its release, MetLife says the report is intended to provide policy makers, regulators, industry participants and other stakeholders “…with information about the positive impact and contribution of the sector,” in what it considers to be a further step towards increasing financial literacy for Australians.
…the insurer notes it seeks to “…redress perceptions which increase consumer disengagement and contribute to a worrying underinsurance gap
Further, the insurer notes it seeks to “…redress perceptions which increase consumer disengagement and contribute to a worrying underinsurance gap, which has been an ongoing and increasing problem for Australia’s working age population.” MetLife says this gap is further exacerbated by factors impacting life insurance customers such as access to quality, affordable advice and understanding recent legislative changes.
The role of advisers and the future of risk commissions
As already noted, one of the many issues addressed by the report surrounds what it advocates to be the critical role played by advisers in helping clients understand the value of life insurance.
While addressing issues of product sustainability, this section of the report also considers the recent history of regulatory pressures hovering over the future of risk commissions. Within this narrative, the report notes that only 27% of Australians receive financial advice, that reducing commissions will place upward pressure on the direct cost of advice to consumers and reduce access to quality advice, which may lead to the following potential consequences:
- Consumers will rely on off-the-shelf insurance products, which are not tailored to their financial and personal needs
- Consumers with lower economic means will lose access to advice
- Most consumers will not pay upfront for advice if the financial product is subject to an underwriting process that could lead to them being denied access to the product. This is different from investment products, which do not require approval to purchase the product
- Consumers on claim will lose the support of their adviser during this difficult time (renewal commissions support this service from advisers)
- Underinsurance rates in the Australian market may increase
- Many financial advisers’ businesses may become unsustainable, forcing them out of the industry and further reducing Australians’ access to advice
Dispelling the myths
The report takes the opportunity to articulate a series myths it considers are held by the Australian community and offers a reality check in order to address and dispel those myths. The myths the report addresses include:
- Life insurance is not value for money or is expensive
- Insurers don’t pay claims
- Insurance erodes retirement savings
- Insurance cover is hidden within superannuation
- People don’t want insurance in super
- Insurance has poor customer outcomes for people claiming against TPD insurance
- Insurance inside super is not fit for purpose
- Life insurance is ‘set and forget’
Call for unity
In noting the life insurance industry is presently under the microscope and facing significant regulatory change and shifting consumer expectations, MetLife Australia’s CEO, Richard Nunn, has made a call for unity.
Nunn says “It is the responsibility of all industry participants to play a positive role in helping stakeholders understand the value of life insurance and to promote this message to a wider audience.”
In the spirit of playing a positive role, Nunn notes this is the reason the insurer has made its report available to all stakeholders – to help them have conversations around value:
“It is imperative we continue to build awareness of the advantages of life insurance, not just to the individual consumer but to the economy and the community,” he said.
Click here to access the full Value of Life Insurance Report, released by MetLife this week.