There has been intense debate recently about changing the risk advice industry’s remuneration structures to improve consumer protection and reduce potential conflicts of interests.
Certainly, these are important issues that need to be resolved, but in this process it is vital that we don’t lose sight of the value that good risk advice provides to individual clients and the nation as a whole.
There has been a tendency for some to view the risk advice sector as simply a distribution channel for big insurers, competing with other distribution channels such as direct channels or group insurance provided through employer super funds.
That is unfortunate, because if we consider the value of risk advice from the client’s perspective we can see the valuable role it plays. Sure, as a customer, it is relatively easy to obtain insurance online or over the phone.
It all seems so easy on those snappy little TV ads and I can do this anytime in the comfort of my home or office.
Through my employer superannuation fund I can obtain standard default cover, usually based on a multiple of my salary, with premiums deducted directly.
I probably also have the ability to apply to increase my insurance.
So why should I use a risk insurance adviser? The key reason is that the other avenues don’t take account of me as an individual – my personal circumstances, relationship obligations, financial commitments and life ambitions.
People are not commodities and neither is the insurance they need.
Today, lifestyles and family arrangements can be highly diverse and more fluid than in the past. Many people marry and have kids later in life. Multiple relationships, divorce and second families are much more common.
People are more mobile in where they live and in their career paths. They may be employed, work as a consultant on short-term contracts, set up and run their own business or multiple variations of the above over time.
And most people’s lifetime financial commitments are greater than ever. They are paying more for their own or their children’s education, in which they will continually invest throughout their lives. Mortgage commitments are higher than ever, not just for younger people, and many people borrow heavily to purchase investment properties.
They may have business partners with interlinked financial obligations. They may have an SMSF with multiple members.
Single professionals may not think they have any close dependants to protect, but forget that their entire lifestyle and accrued wealth depend on their ability to maintain their income, even if they fall ill.
The problem is that most people don’t know how to assess their broader risks and how they may change over time. Just as importantly, they don’t understand the range of covers available or their finer policy differences, the purpose for which they are intendedor how they link together to provide risk protection.
These include death cover, total and permanent disability (own or any occupation), critical illness cover, income protection and business expenses cover. Many of these covers are either not readily available through the direct or default super channels, or only at a basic level with reduced policy benefits and restricted definitions.
Then there is the issue of quantifying how much cover I actually need in the right combination that I can afford.
Ultimately, insurance is only as good as your ability to claim it when you need it and that’s where the value of advice comes into its own. There are very different ways that insurance can be put in place – automatic acceptance levels with no underwriting, with pre-existing conditions being excluded or fully underwritten at the time of application.
Using a risk adviser will ensure that the application is underwritten prior to the policy being in force, so there are no nasty surprises at claim time.
Only an expert adviser can fully take account of someone’s personal circumstance, make them aware of the range of insurance available and recommend the appropriate combination to properly protect them and their dependants, now and into the future.
Only an adviser will regularly review your insurance to ensure it takes account of your changing circumstances and financial commitments.
And only an adviser will guide you through the claims process in the event of making a claim.
As a nation we have long known we have an underinsurance problem, which of course not just costs the underinsured people and their families when they need help, but costs taxpayers and the economy as a whole.
So it is vital that as we reform our industry to improve consumer protection and professional standards, we never lose sight of the fact that quality risk advice is not the problem – it’s the solution.
David Spiteri is national risk manager at Centrepoint Alliance
