The industry is acutely aware life insurance is misunderstood in Australia and the findings from the most recent TAL Galaxy Poll 2015 have raised yet another red flag concerning consumers’ understanding of life insurance.
Nearly one third of all respondents said they don’t have any form of life insurance (life, total and permanent disability, income protection and trauma) because they are protected by their health insurance. This presents an opportunity for advisers to address this knowledge gap with clients.
Consumers are simply unaware of the differences between health and life insurance. The challenge is to unpack the differences for consumers and explain the roles of each insurance – that they are mutually exclusive and both equally relevant and important to protecting them in the event of an unexpected illness or accident.
Australians value life insurance, but too many don’t have it
Seventy-one per cent of Australians said that it provides peace of mind if the main income earner in the family has some form of life insurance. Unfortunately, it didn’t follow that these people were adequately insured.
So why are so many Australians confused about the benefits of life insurance and the differences between life and health insurance?
The poll revealed a number of reasons for this, most of which relate to confidence. Respondents revealed themselves to be confident when assessing and buying the kind of insurance they use frequently, like car and/or home and contents, but far less confident when it came to buying life insurance.
Fewer than 20 per cent said they were very confident that they could choose the right life insurance for their needs, and a third said they were not confident at all. What’s more, when respondents were asked to rank 11 financial products in terms of their confidence in choosing the most appropriate one for them, the four types of life insurance – life, trauma, total and permanent disability and income protection – were ranked as the bottom four.
Those who have life insurance don’t know the specifics
Other findings from the poll reinforce the overall picture of confusion. Of those surveyed who do have life insurance, nearly half (43 per cent) were unable to say which conditions were exempt from their policy. It is a fair assumption, therefore, that these same people would be unlikely to be familiar with their policy conditions.
Risk advisers have a crucial role to play
The findings from this latest Poll serve as yet another reminder of the number of Australians who don’t understand the important financial protection life insurance offers, and therefore don’t value it sufficiently to insure themselves adequately. Additionally, of those who do have life insurance, a large number don’t fully understand what they are – and are not – covered for. Policies differ widely. Exclusions, conditions, and even price can vary enormously, so comparing like with like can be challenging without the help of a risk specialist.
The bottom line? As an industry, we need to do more to educate Australians about the financial protection that life insurance offers. Understanding some of the common misunderstandings regarding life insurance is key to addressing and solving the gap in understanding. Risk advisers deal with clients on a daily basis and there is enormous opportunity to help debunk some of these widely held but incorrect assumptions and help Australians make informed choices about financial protection through insurance.
Niall McConville is general manager of retail distribution with life insurer TAL
Niall informative article, however, there wont be enough specialist advisers left for TAL to speak with if the LIF remains unchanged. You know that. Clients will be either forced to the banks or direct insurers with dire consequences.
the majority of things you listed are well and truly easily worked in with day to day roles of being an adviser. Maybe you need to work smarter on processes and what type of client you have (or want) instead of blaming the industry. I for one am sick of hearing other (and rightly or wrongly, older) adviser’s whinging about what is needed to clean up the industry. Do you not think he has a very valid point of educating clients? that is our job and is in the best interest of the industry to do what we can. I know TAL do a lot for advisers and to improve the industry and this article is purely explaining where we can improve and where we need to focus more on.. we are not perfect. by the way, I am an independent adviser and use many providers, not just TAL.
Niall, have you ever thought underinsurance is NOT caused by planners at all? Lets take an example, a 50YO salesman (no travel) earning $50,000 pa applies for $100,000 Life, TPD (own),CCI (standard with reinstatement) and IP (Premier Indemnity increasing claims) all riders with TAL, on a stepped premium. As can be seen, nothing to extravagant about the amounts or the cover yet you want to charge the man almost $560 p/m ($6,700 pa) for the privilege. That’s 16% of his after tax income. With mortgages, bills and families, I am not sure any amount of education will make that pill easier to swallow, considering the premiums will just get higher. Maybe you need to start putting yourselves in the clients shoes and stop making these products with bells and whistles that no one can afford, negotiate harder with reassurers and build products that people can afford. Maybe then people will buy cover and the underinsurance issues in Australia will fall. People in glass houses shouldn’t throw stones!
The Government want us to reduce our income, have us hold capital reserves [re claw-backs], hold a degree, undertake continuous professional development, subscribe to a code of ethics, undertake a professional year in order to remain licensed, provide an FSG, complete a Fact Find, do research, prepare and present an SoA, all with no guarantee we’ll actually do the business and get paid. On top of this Niall is recommending we become community educators. A wonderfully altruistic idea. It’s just that I don’t know how I’m going to fit all this into each working week? I already work a 6 day week, guess that’s my Sundays taken care of!
Niall
As Nettie Handley say’s it is about time you insurers backed the advisers. If you want us to support you it is the right time to start supporting advisers.
Suddenly why are we to be the ones to be responsible for educating the public on Risk Insurance. It’s about time all insurers got out of bed with a fresh mind set and ran a thorough ongoing campaign across all sections of the media educating the public.
Through the FSC and the AFA Life offices have embarked on a course of action to
Place all the blame on our shoulders, yet you continue to support the churned by taking their business on board. Yet you do not support the legitimate advisets who do the right thing for our clients.
Yours and other Risk insurers need to look at what you are doing to a fantastic industry and make a decision how you will support us.
It is up to Insurers to educate the public. If you want us to go into schools and universities, run television and news paper advertising you need to pay for every cent of it and pay advisers their hourly rate.
At a recent conference, Life office hierarchy on several occasions throughout the day asked “what did they have to do to receive my support. Isn’t that funny. Here they are screaming for new business yet behind our backs they have been quietly destroying the Industry. I personally believe there will be Life Offices who seriously suffer trying to get new business through the door and it serves them right. At the conference we actually (unintentionaly) discussed between ourselves what different life offices did or did not offer. Service standards were a hot topic as we’re Insurers ability to handle claims and now you have blamed us for the publics lack of knowledge, I am sure this will be a bone of contention.
Great research Niall, I’d love to see the report if I could.
Whilst I agree advisers have a role in dispelling insurance myths, I would argue that the industry has an even bigger role. We can only see one client at a time. Why can’t insurers get together to tell Australians the great story of claims paid and the value of getting insurance advice. Wasn’t the purpose of the Lifewise initiative way back when? Super funds can get together to bag out commissions and therefore advice, but our insurers can’t connect! Insurers, if they would only work together for the greater good, could have the most impact on consumer insurance literacy. The disconnect between them is letting all advisers down.
Sery
You would have to read the SOA and the file notes first if the same client presenting the same needs with the same affordability to the adviser before you can legitimately attack the different sum insureds from different advisers. That is the sort of thing ASIC does with shadow shopping
The bottom line is advisers all have well grounded biases ( no one is pure here ) and preferred strategies for certain situations, BUT that does NOT make it an exercise in “cookie Cutter advice” as is often alleged by non-risk specialists. It may well be for example that Adviser 1 can get IP cover with exclusions & loadings, but adviser 2 does not have that relationship with that insurer or the insurer is not on the APL ( there is a certain bank owned dealer group which prohibits its advisers from using BT for example, apparently without a murmur from ASIC ).
There are also some advisers for example who WILL not recommend Any Occ TPD in any circumstances because of claims experience. Instead they recommend substantial sums of trauma at the same time advising the clients of the plusses and minuses of that approach. I do not agree, but that’s their preference, providing IP takes some of the sting out of disability
There is no one solution to any one situation
As to the role of advisers informing and explaining types of cover and its purpose I have one comment – we need to be paid appropriately. Here’s a suggestion for those insurers who play, directly or indirectly in the DIRECT market – why not devote some of that advertising budget to educating the population in general.
There’s another issue with insurance recommendations. A client can go to three different planners and get three different sets of recommended levels of cover. The higher the level of cover, the larger the premiums, and the more likely that the planner could possibly be ‘premium chasing’. Some planners will take into account affordability, others will recommend 100% replacement income lump sum amounts in the TPD cover analysis which is not necessary if he is also recommending income protection. As Trauma is normally the most expensive, some will recommend a basic amount of $100k while others will recommend taking out $500k + for the same client. With such a variance in recommended cover levels, I can understand all too well why the general public is still suspicious of planners doing the right thing by them.