Advisers – are they really needed?
As insurers move towards an online or ‘robo advice’ model for selling life insurance, the path is littered with long-term problems that can potentially see an increase in litigation.
Policy churning, inappropriate advice and trailing commission incentives driving these wrong behaviours have been cited as some of the many reasons why life insurers are moving towards an online or robo advice model for selling life insurance.
The life insurance industry is evolving quickly. Not unlike other product industries, this is largely driven by increased consumer awareness and the need to get a product faster. It was recently reported by Risk Adviser that NobleOak research found that consumer confidence has increased in the life space and more Australians would be confident in purchasing life products online. This will undoubtedly prompt life insurers to continue to work towards a total online or robo advice system. Let’s face it, cutting out the adviser and the commissions they receive per policy would mean more profits.
While this model may be viewed as a ‘no brainer’ cash injection to the profit and loss statements of life insurers, the path is littered with long-term problems that could potentially see an increase in litigation into the future. While consumers have reported confidence in purchasing life products online, I wonder whether this sentiment will remain when the time comes to make a claim and the consumer discovers that the policy will not respond to their personal circumstances.
In my experience, the everyday consumer does not have a reasonable grasp on the legal concepts and impacts of the duty of disclosure, fraudulent non-disclosure or even innocent non-disclosure. Simply, consumers purchasing life insurance do not appreciate why an insurer needs to know about their short period of post-natal depression, back pain that happened 10 years ago or even about that time they saw a psychologist and the script they filled for Valium briefly following a relationship break up. It is often the case that when the time comes to make a claim, insurance companies will actively investigate a person’s medical history to evade payment and repudiate the insurance contract. While this process may arguably be good post-claim good due diligence, once this occurs, I can assure you that any consumer sentiment that did exist quickly fades.
Disgruntled life policyholders contact me on a weekly basis where their income protection, total and permanent disability or even death claims have been denied on the grounds of the above mentioned defences available to life insurers. This is not new. More often than not, there are no grounds to agitate for a relief when an experienced adviser was involved in selling the product and the duty of disclosure has clearly been explained and the policyholder simply did not comply. However, I am beginning to see a significant increase in a new type of case where clients have purchased their life insurance online without the assistance of an adviser. The common theme, in this emerging bundle of aggrieved policyholders, is that they did not understand the significance of the duty of disclosure and their prior medical history. Online life insurance, it seems, can be purchased just as quickly as posting a regrettable post on social media. Unfortunately, in an online setting, purchasing life insurance is not given the importance it is needed, compared with sitting down face to face with an experienced adviser.
This risk of long-term brand damage and reduction in consumer sentiment is arguably anticipated by life insurers who are moving into this arena. Many online life insurers, trade and advertise under different Generation Y-influenced business names. While of course, noting in the fine print the key underwriter of the insurance – the large household name. Therefore, the consumer who is happy to purchase the product online, but later finds herself angered because her claim is denied, isn’t angry at the big players in the life market, but rather the brand that no one has ever heard of. Clever move.
The adviser is most definitely needed to ensure that the basic duties of disclosure are complied with and explained in terms that are easy to understand. Otherwise, good money is thrown away at rubbish policies that will simply not respond when it is needed most. The adviser is the key to the long-term survival of the life insurance industry in Australia and more energy ought to be placed into strengthening this space. While short-term profits may seem understandably attractive to life insurers, the long-term litigation pain could be disastrous for their brand and the future security of their customers.
William Barsby is a partner and practice manager of the superannuation insurance litigation department for Shine Lawyers
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