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Why consumers need life insurance advice

The life insurance adviser system is not perfect, but let’s not throw the baby out with the bathwater.

There has been a great deal of publicity around the recent ASIC review of life insurance and frankly the results were abysmal. A 37 per cent fail rate is totally unacceptable.

Consumer groups are understandably outraged and howling for higher education standards; level or no commission; and greater regulation. While I will be the first to admit they have a case, the facts are not really well understood.

Australians have access to life insurance through multiple distribution channels. Many companies sell online and that suits a percentage of the market. Online suppliers are regarded as low-cost models but who pays for their advertising, underwriters, claims team and administrators? Those costs are built in to the product.

They still exist. In fact, often they are greater than other models due to high levels of discontinuance (which has prompted some companies to offer incentives such as pre-paid Visa cards for maintaining the policy). And then there’s the problem with claims - one online insurer has a 50 per cent claim denial record.

Virtually every superannuation fund offers life insurance and most advertise ‘no fees’.


They forget to mention the profit share they receive from the insurance companies under their group insurance pool arrangements.

Often it is a higher amount than many of the commission models. Like the online insurer, they have limited ‘short form’ health questions with ‘catch-all questions’ that allow them to underwrite at the time of a claim.

The adviser model is different. The adviser is correctly expected to not just ‘know’ but to understand their client.

Depending on the circumstances, this can take days of work. Unlike the online and super fund models, they are also expected to assist at the time of a claim, and again, this can take days of work.

Two recent examples come to mind:

A lady with bowel polyps applied for life insurance. The adviser needed to understand the background to the diagnosis before seeking an underwriter.

He then actually spoke to the underwriters at six different companies to ascertain their likely attitude to the issue. In one case he spoke with the reinsurer to learn more and in particular, what evidence they would need to proceed. The result was that after days of work by the adviser, the client was underwritten with the condition disclosed.

That would never have happened under the direct or (group life) superannuation fund models. In fact, based on a current case I’m familiar with, this condition may have been used to trigger a non-disclosure denial of a claim for an unrelated illness.

The second example involves a total and permanent disability (TPD) claim:

The client was not aware that his policy provided cover and made no claim. The adviser, on learning about his condition, prepared the paperwork, requested the various doctors’ reports to support the claim, and submitted it to the insurer. Many hours of work resulted in an excellent result for the client.

If that had been a general insurance claim, the client would have been required to pay for the claims preparation, which in the case of some large claims can amount to hundreds of thousands of dollars.

The adviser system is not perfect. My personal view is that those advisers who had multiple strikes in the ASIC report should be sanctioned and suspended until they can demonstrate that they are competent to act in the best interests of the client. But let’s not throw the baby out with the bathwater

Life insurance advisers serve an important role in the community and they need to be compensated accordingly.

According to recent statistics, only 4 per cent of the total population with dependent children have adequate levels of life insurance cover.

Michael Harrison is the independent chair of Synchron and the former head of life insurance at Zurich. He consults as an expert witness in life insurance matters.


Why consumers need life insurance advice
Michael Harrison
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