A mismatch in thinking?
Australia’s life underinsurance problem is as significant as it is well-documented, but are advisers and clients on the same page on this issue?
Rice Warner’s Underinsurance in Australia Report 2012 estimated the gap between cover held and cover required to maintain current living standards to be $2.17 billion for death cover, $7.91 billion for TPD and $589 billion for income protection.
The same report noted that the death cover gap had decreased by about 30 per cent over the previous two years, despite the increasingly generous cover offered through superannuation funds and the growing uptake of direct life insurance.
While the increased access to simple, affordable life cover is welcomed, it does appear to have given rise to a new phenomenon, the effects of which may be every bit as significant as underinsurance.
That phenomenon is “misinsurance”. It exists where there is a mismatch between what an individual needs – or believes they are covered for – and what they are actually covered for.
There is, however, another mismatch. It has become apparent that there is a widening gap between what consumers think about their own underinsurance, and what advisers assume they think about the issue.
Data from across the globe – but particularly from markets like ours reliant on adviser-directed solutions – indicate that when it comes to key concepts about insurance, consumers are more aware and more prepared to have the insurance conversation than advisers think they are.
What results are missed opportunities to engage in meaningful conversations – or worse, when those conversations occur, adviser biases on what they think clients know and assume about insurance result in a disconnect.
We’ve uncovered and compiled this divide in a new presentation designed to:
• Evaluate how accurately advisers can predict consumers’ attitudes around a variety of insurance-related topics.
• Determine areas where there are notable differences between what consumers and advisers believe.
• Identify opportunities advisers can explore to engage participants in more meaningful conversations about disability preparedness — and to motivate them to take the necessary steps to protect what’s important to them.
Some highlights from our research into key studies performed in this area indicate that advisers need to reshape their conversations to be more effective.
Consumers do not think they are well prepared when it comes to insurance. Nearly all consumers say their ability to earn an income is most important, however 37 per cent say they have never really thought about protecting it.
On the flip side, advisers tend to think consumers are more “in denial” than they really are.
The opportunity is that consumers are likely feeling less confident and in control than they’re projecting – or than advisers are assuming.
Exacerbating these findings is that contrary to what advisers believe, eight out of 10 consumers think that a disability “could happen to anyone at any time”.
Advisers significantly underestimate how many consumers think a disability can strike at any age.
Nearly half of advisers predicted that consumers would agree that “disabilities happen infrequently”. That’s nearly 10 times more than the percentage of consumers who actually responded this way.
As a consequence, advisers may be anticipating what objections they will hear from some consumers.
The findings indicate, however, that more consumers may be receptive to insurance solutions than advisers assume, or that the objections consumers give to advisers may not represent their true feelings.
These “divides” indicate that advisers may view consumers as less aware of the risk of disability – and the need to plan for it – than is actually the case. Economic uncertainty has raised the importance of financial security. This presents encouraging new opportunities to help consumers plan for insurance solutions.
These opportunities can only be developed when advisers have a sound insurance philosophy, developed so that it becomes the adviser's “house view”, and as such can be communicated with conviction and evidence in conjunction with an appreciation of the client demographic being serviced.
Developing a presentation that unpacks these mismatches start the conversation, but it is through programs such as Mel Crawford's 19Thirty Cracking the Life Insurance Code workshops, and by working with other professionals, that we can change, enhance and refresh the insurance conversation for consumers.
This action is required where advisers critique their modus operandi when it comes to insurance. This is not because of the scrutiny delivered from ASIC report 413, or the Trowbridge inquiry and its findings.
Rather, this is an opportunity to re-engage consumers on underinsurance with changed language and a changed mindset that meets their perceptions and understandings – and, as the research shows, their fear of being unprepared and their willingness to see advice to mitigate those fears.
Andy Marshall is head of sales strategies and research at Zurich Financial Services Australia.
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