Policy churning, inappropriate advice and trailing commission incentives driving these wrong behaviours have been cited as some of the many reasons why life insurers are moving towards an online or robo advice model for selling life insurance.
The life insurance industry is evolving quickly. Not unlike other product industries, this is largely driven by increased consumer awareness and the need to get a product faster. It was recently reported by Risk Adviser that NobleOak research found that consumer confidence has increased in the life space and more Australians would be confident in purchasing life products online. This will undoubtedly prompt life insurers to continue to work towards a total online or robo advice system. Let’s face it, cutting out the adviser and the commissions they receive per policy would mean more profits.
While this model may be viewed as a ‘no brainer’ cash injection to the profit and loss statements of life insurers, the path is littered with long-term problems that could potentially see an increase in litigation into the future. While consumers have reported confidence in purchasing life products online, I wonder whether this sentiment will remain when the time comes to make a claim and the consumer discovers that the policy will not respond to their personal circumstances.
In my experience, the everyday consumer does not have a reasonable grasp on the legal concepts and impacts of the duty of disclosure, fraudulent non-disclosure or even innocent non-disclosure. Simply, consumers purchasing life insurance do not appreciate why an insurer needs to know about their short period of post-natal depression, back pain that happened 10 years ago or even about that time they saw a psychologist and the script they filled for Valium briefly following a relationship break up. It is often the case that when the time comes to make a claim, insurance companies will actively investigate a person’s medical history to evade payment and repudiate the insurance contract. While this process may arguably be good post-claim good due diligence, once this occurs, I can assure you that any consumer sentiment that did exist quickly fades.
Disgruntled life policyholders contact me on a weekly basis where their income protection, total and permanent disability or even death claims have been denied on the grounds of the above mentioned defences available to life insurers. This is not new. More often than not, there are no grounds to agitate for a relief when an experienced adviser was involved in selling the product and the duty of disclosure has clearly been explained and the policyholder simply did not comply. However, I am beginning to see a significant increase in a new type of case where clients have purchased their life insurance online without the assistance of an adviser. The common theme, in this emerging bundle of aggrieved policyholders, is that they did not understand the significance of the duty of disclosure and their prior medical history. Online life insurance, it seems, can be purchased just as quickly as posting a regrettable post on social media. Unfortunately, in an online setting, purchasing life insurance is not given the importance it is needed, compared with sitting down face to face with an experienced adviser.
This risk of long-term brand damage and reduction in consumer sentiment is arguably anticipated by life insurers who are moving into this arena. Many online life insurers, trade and advertise under different Generation Y-influenced business names. While of course, noting in the fine print the key underwriter of the insurance – the large household name. Therefore, the consumer who is happy to purchase the product online, but later finds herself angered because her claim is denied, isn’t angry at the big players in the life market, but rather the brand that no one has ever heard of. Clever move.
The adviser is most definitely needed to ensure that the basic duties of disclosure are complied with and explained in terms that are easy to understand. Otherwise, good money is thrown away at rubbish policies that will simply not respond when it is needed most. The adviser is the key to the long-term survival of the life insurance industry in Australia and more energy ought to be placed into strengthening this space. While short-term profits may seem understandably attractive to life insurers, the long-term litigation pain could be disastrous for their brand and the future security of their customers.
William Barsby is a partner and practice manager of the superannuation insurance litigation department for Shine Lawyers
Now you see, it appears that we are all missing the point. ASIC knows all and sees all. They convince the poor bugger out there that we advisers are not to be trusted. That all is well if you would only TRUST the companies marketing their swill to the unwary consumer. On the balance of probability, yes okay some will have a claim, of which some will dispute the claim but go away and others, well they will fight the for the claim and most likely win in the courts. But the majority of claims lodged will result in shock and surprise at not getting any benefit due to non disclosure. Who wins from this you say. The life insurer wins, the regulator is satisfied that fighting and winning claims by the consumer is low and we IFA’s,, well, we all lose. But so does the consumer who did not count on being duded by these very companies who peddled their nonsense and took advantage of the consumer. But now, down on their knees, they do not have the resources to fight these large insurance companies. Thanks to ASIC and their puppet masters who having lobbied government ministers of both persuasions, they win. The consumer and the IFA’s can simply get nicked. People, ASIC are clowns and so to the political swill they are beholden to. Shame….damn shame..well done FPA & AFA…..thanks for your efforts….SAD !!!!
The advent of on-line insurance is unfortunate for consumers. I have yet as an adviser met a consumer that knew what level of cover was required based on circumstances. Apart from that there are the issues of inside or outside super, stepped or level premiums and policy definitions that many consumers would not consider. The major problem is that underwriting is generally not undertaken until a claim is lodged. This is why up to 50% of claims are denied as opposed to 4% where an adviser is involved. On-line direct insurance is a disaster waiting to happen for consumers. The irony of the matter is that the cost of on-line insurance without the benefit of advice is in fact more expensive than insurance through an adviser including the commissions paid to them.
Some excellent comments. Based on my experience (supported by FOS stats) advised business has many less problems than direct and group.
A more interesting question is: will lawyers be needed given the advances in artificial intelligence?
An online service for “selling” life insurance?
Yeh, I’d like to see that..
Written by somebody who has never spoken face to face with clients & ensured that they have appropriate cover.
Excellent article by William but is anyone listening. We have a regulator ideologically opposed to commission, and sees the life risk industry through that paradigm. When, for example, will ASIC insist that the snake-oil merchants who flog DIRECT cover with no underwriting on daytime TV be required to have a prominent warning that underwriting will occur AT CLAIM and take 10 minutes with each caller to explain Non-Disclosure.
Now a question for William. Everyone talks about “innocent ” Non-Disclosure and advisers should be aware, but where in the Act is it defined.
Thanks William. What an attention grabbing title to a great piece- certainly got me reading as an adviser with a long history in risk advice! You’re definitely correct about the need for clients to have their duty of disclosure clearly explained- the advice profession has developed a number of tools to assist with this due to reduce the potential for disputes later on. You are also right in highlighting that it is difficult for such explanation to be confirmed via “robo” methods- leaving the way open for more disputed claims down the track. Given the adviser’s important role at policy proposal stage, I think their role at claim time is just as important. In my experience, advisers, their claiming clients and families can approach life companies collaboratively (leveraging already-present working relationships)- this should be the first step toward the life company admitting the claim. Most claims (particularly where clients have been advised) can be resolved in this way, without the need for an injuries lawyer having to “go to war” with the insurer on behalf of their client, though this might be needed in a small percentage of cases.
I agree with Craig and what will occur is a continuing disaster that is now presently occurring with claims by members of Industry Super Funds on their insurances only to find out that most claims are denied. Pay cheep get cheep.
Then we have the sensible lawyers such as this person who see’s the Insurance Contracts Act for what it is, and the duty of disclosure as being absolute. When the insurer goes back and dumps the last 10 years of your Pharmacy purchases and the last 15 years of every doctor that you have every been to, your chances if not properly underwritten and advised of a successful claim is pretty much NIL.
There will be no politicians supporting anyone who lied to the Insurer
Congratulations William for very well constructed and explanatory article.
With the current focus on claims processes and outcomes it is very timely to highlight the value of knowledge, experience, commitment and empathy that good advisers in this space can deliver to their clients when they are most likely not in the head space to be arguing with an insurer against product limitations or non disclosure issues.
Yes, it may take a little longer to apply for and receive advised insurance product versus online or direct product, but when it arrives at the point of claim, the additional process and due diligence taken when implementing the cover is often priceless to the efficiency of the claim payment.
Great article supported by recent legislation changes that now have the duty of disclosure obligations linked to the policy without the three year expiry time frame.
IN OTHER WORDS NON DISCLUSRE IS NOW EVEN MORE IMPORTANT AND WHY AN ADVISER IS THE ONLY CHANNEL TO USE.
No win no fee, desperate for business. With no advice the opportunity for litigation is greater, a win – win for the lawyers. On line and robo are underwritten at claim time. It is policies that do not have any guarantee, the corner stone of personal cover.