With life insurance being placed in the ‘too-hard’ basket for many Australians, the industry has developed simple and convenient methods to take out cover. However, as Tim Browne discusses, time savings upfront need to be carefully managed against potential delays at the time of greatest need: claim payment.
I was recently looking for a book on the Amalfi Coast for my wife.
I could have searched online at Amazon or iTunes, gone to our local library or tried the nearest major book store. I chose the latter, and one of the experts there steered me to the right section and ran me through my options.
Today’s consumers are certainly spoilt for choice when it comes to where, when and how we purchase goods and services.
The same is true of life insurance, and the industry has developed a range of distribution channels to meet different client needs when applying for cover.
The first, out of three main options, is for the client to see an financial adviser, where complex needs are often involved and full underwriting is typically undertaken upfront.
The second option is for clients to take out life insurance through their superannuation fund, where auto acceptance levels of cover have been agreed to between the trustee and insurer.
Alternatively, clients can also go direct, taking out insurance online or over the phone.
This is a simple and efficient way to fulfil life insurance needs, and can involve limited upfront underwriting with pre-existing conditions being assessed at the time of claim.
Over the past five years, the trend towards more efficient and streamlined upfront underwriting for retail life business, and finalising insurance cover as quickly as possible, has gathered significant momentum in Australia.
The main driving forces have been the increased demand from consumers to improve the application process.
This has generated significant industry-wide investment in electronic applications, and the time it takes life offices to process retail applications has been reduced to hours in many instances rather than weeks, as it was in the past.
Life companies in Australia have successfully introduced online electronic applications for simple, or 'cleanskin’ retail cases, which utilise smart underwriting rules engines.
These systems can provide an immediate decision, without the need for human intervention. This speed is fantastic for clients with straightforward applications.
It also provides clients with confidence that their personal insurance application has been reviewed by an underwriter at policy inception.
Making it easier for more people to take out cover is a key priority for the industry and each channel has its place, particularly as life insurance is perceived as a difficult proposition by many families.
In fact, in one of our recent surveys, nearly half of Australians (47 per cent) told us that one of the main reasons they do not have life insurance is that it is too complicated, or because the whole process takes too long.
However, as financial advisers assess the merit of insurance options available to their clients, there is a range of factors to consider.
For instance, the introduction of direct insurance, and an increased focus on processing retail life insurance applications as quickly as possible, is leading to a shift away from traditional upfront underwriting.
This change brings with it new pressures on the claims process.
Time savings upfront therefore need to be carefully managed against potential delays at the time of greatest need: claim payment.
Research has also highlighted that the average life insurance payout for an advised client is about 50 per cent higher than the average payout for clients who access insurance through superannuation. This is consistent with broader industry statistics.
For example, according to research from the Financial Services Council and KPMG, the average insurance claim paid outside of superannuation is $132,537, while the average claim paid from an employer default fund is only $70,000.
Underwriting upfront has also provided individuals with an opportunity to undergo free medical examinations and blood tests, and in some instances this can provide a valuable medical update, leading to a medical problem being detected.
Lives have been saved in some instances where significant medical issues such as a heart problem or raised blood pressure are identified during testing.
Ensuring that the right balance is struck between sensible and effective underwriting requirements, and practical and efficient claims management practices in retail insurance, is imperative to the future success and reputation of the industry.
Ultimately, providing peace of mind to our clients and delivering prompt payment of legitimate claims must always remain our number one priority.
Tim Browne is the general manager of retail advice for CommInsure.
