Last week, APRA and ASIC revealed claims and dispute “ratios” across each life insurance sales channel, with the claims ratio defined as the dollars paid out as a percentage of total premiums paid and the dispute ratio defined as the numbers of disputes per 100,000 people insured.
“The data shows that the claims paid ratio for super total and permanent disability insurance was 85 per cent, compared with 45 per cent when sold by financial advisers,” said Maurice Blackburn super and insurance principal Josh Mennen.
“This reinforces that while adviser-sold policies are often marketed as a bespoke product, too often they are compromised by conflicts of interest, including insurers paying trailing commissions that result in poor product selection and claim disputes caused by underwriting complications.”
Now the AFA has issued a response, saying Maurice Blackburn “jumped to a range of conclusions” in questioning the value of life insurance obtained through financial advisers.
“The average claim benefits demonstrate very clearly that those clients who receive specific tailored life insurance advice from a financial adviser receive a benefit far more relevant to their circumstances and their household debt and living costs,” the AFA said in a statement. “This clearly demonstrates significantly more value for financial advice clients.”
At issue is Maurice Blackburn’s use of the claims paid ratio as the “sole determining factor of value”. The AFA points out that this measure – while useful – is not a complete measure, as it does not include all costs that clients experience and does not take into account product complexity.
“A true measure of the direct benefit to clients/group super fund members would be the net return to clients/members divided by the total cost to clients/members,” the AFA said. “This is the actual amount of money in the hands of the client after the finalisation of a successful claim. In the majority of cases, where a financial advice client experiences a life insurance claims event, their financial adviser will assist them or their loved ones to make a claim at no additional cost.”
The AFA also points out that group super products are simpler products due to the fact that they are insuring larger amounts of people and so is no requirement for underwriting provided the member is being insured for less than the automatic acceptance limit. Group super premiums also don’t include any ongoing advice or support to ensure that coverage continues to align with client needs, and do not provide the “emotional benefit” of a client having confidence that they have the right level of insurance.
“We welcome further investigation of the APRA claims and disputes data and will not be leaping to conclusions or making broad unsubstantiated claims,” the AFA said. “Neither will we be seeking to undermine consumer confidence in one segment of the life insurance market at this most challenging time as the country comes to terms with the impact of the coronavirus pandemic.”
Dear Editor, Thank you for publishing my explanation.
Regards, Jossel Ginsburg(Retired adviser after 53 years service) Now Mentor to Kabel Financial Services and claims negotiator.
Dear editor and reporter,
I submitted my comments and resubmitted them agin in my attempt to explain. Surely I deserve some acknowledgement ?
I tried to make it easier for you to understand and I am now happy that you have published the explanation in your words.
Again I state that this is one of the most ridiculous comparisons that I have ever seen. Unfortunately it takes a lot of education for the public to understand the difference between personal and group insurance. For this reason, this article, in my opinion, gives an entirely misguided impression to the public.
Most group insurance policy holders enjoy a Free Limit (Auto Acceptance) – That is, no evidence of health, no evidence of income and generally no specific occupation is required by the insurer. Entry is only restricted according to the rules set between the Employer and the Insurer on establishment of the plan and entry different terms and conditions apply to each group.
On the other hand, Individual (personal) insurance is accepted on the basis that each policy applicant provides true information applicable to his or her situation. Each policy is individually assessed by the underwriters and the terms and conditions are quoted on acceptance. Most “clean skin cases” are accepted at ordinary rates and the conditions of the policy contract apply.
In many cases, when the individual is disabled he or she then may then have to provide supporting proof of income, occupation and health. The claims team will then establish if the original application was acceptable or when there it should be queried. If he or she had failed to provide relevant important information, this will become evident in the claims procedure. If important information was missed in the original application for cover, the insurer has the right to query whether the original application is valid. It is simple: As an example, if the insured is disabled from a heart attack, the insurer has the right to ask the medical attendants if the individual had symptoms of this health issue before applying for the cover. Example 2. If he or she had a mental issue, the insurer would have had the right to ask if he had suffered from this issue before the date of application. etc.etc. Further, the insurer would have had the right to refuse the cover, load the premiums or offer alternate conditions. The insurer is also entitled to establish that the claimant was actually working at the time of the claim. If the insured was not working at the time of the claim commenced then questions will need to be answered prior to the insurer considering a payout.
So as you as you can see, there is a massive difference between these two types of contracts, both in terms of acceptance and policy conditions.
This subject requires professional assistance as you. An see, if a specialist lawyers cannot understand the difference, then how can a member of the public understand these vast differences.
I wish that all Personal insurance could be offered to individuals without the need for them to provide evidence of good health, an acceptable occupation and proof of income from personal exertion. This would make the insurers insolvent in a very short time.
If you wish to discuss these points raised about your article there are many professional advisers who would be able to assist.
It is really important as an industry we value insurance (group & retail) – so that more Australians are protected.
Stakeholders involved in claims – customers, financial advisers, trustees and insurers can all share examples where lawyer involvement in the claim process has added little value.
Surely, they can’t all be wrong!
Like everything, the truth lies somewhere in the middle.
The claims ratio paid amount favours group super, which makes it look like people with this insurance are better off. It doesn’t. It just reflects that more people with group super make successful claims, and the insurance companies can sustain this as their product distribution costs are low due to previous opt in arrangements.
The claims by the AFA that the benefits should be viewed through the lens of how much is left in the claimants pocket or the fact they have access to an adviser is also wrong. The claimant has really been paying the adviser through their commissions for years for the service they are now delivering.
The main reason there is a disparity is because there are higher distribution costs, which includes not only the commissions, but also the underwriting process.
That is ok though, as the benefit to consumers is they have the correct level of insurance relevant to their circumstances and not their age. I imagine a 50 year old father of two kids with a $500k debt would prefer to get enough to pay out the mortgage and have some leftover to live off instead of getting the $50,000 from 1 unit of cover.
I challenge Maurice Blackburn to publish exactly what they charge for insurance claims, both in dollar and percentage terms, and split those figures between simple administration, assistance with AFCA (which is supposed to be a free service for consumers) and actual litigation. The AFA can do the same analysis for financial planners and then the public can decide who offers better value when it comes to insurance payouts.
^ The claims paid ratio is the dollar amount of claims paid out in the reporting period as a percentage of the annual premiums receivable in the same period.
This is not a reflection on work by advisers at all. This misleading stat is a reflection on profitability of one type of insurance v another. Advisers do not set the price of cover.
True value of an adviser as AFA suggests should be measured actual benefits received by clients.
I’d be really interested to find out on what basis Maurice Blackburn can can lay claim to their statement on their website ” Maurice Blackburn’s superannuation and insurance claims lawyers and claims team are experts” without actually having any qualifications in the fields of superannuation or personal insurance ??
What Maurice Blackburn have done is given General Advice and I’m not sure they hold an AFSL. Perhaps we should seek advice from Jullia Gillard to see if MB have breached any laws or maybe just ask ASIC