Risk product features and benefits
With the continued convergence in key definition wordings, life companies continue to introduce enhanced features and benefits as a key point of product differentiation.
However, the adviser panel was divided on the extent to which features and benefits influence their product recommendations.
Where a benefit was considered particularly relevant to their client base, for example, needle-stick benefits for medical professionals, advisers considered the availability wording of this benefit as very important. Advisers with a client base that didn’t include high-risk occupations placed far less importance on the availability of this type of benefit.
A number of panel members also expressed the view that given the older age of their clients and the large sums insured, the ability to obtain cover on reasonable terms was more important than the benefits contained in the product.
The importance of access to underwriters, the need for flexibility in determining financial evidence requirements and even an understanding of each company’s reinsurers and their requirements were mentioned by these advisers.
Definitions
The panel was unanimous in placing the greatest emphasis on the core definitions with the exception of term insurance and, to a lesser extent, total and permanent disablement (TPD), where price was given the highest weighting.
One adviser noted that they only recommend top of the range products and would not recommend, for example, a product with an indemnity definition to their clients.
The panel was also asked to rank the three different classes of total disability definitions. The highest weighting was given to ‘one duty’ definitions, over ‘10 hours’ and ‘80 per cent of income’ definitions.
This preference is reflected in the market share of companies offering the various types of definitions and may in part reflect adviser familiarity with the definition offered by their preferred manufacturer.
Anticipated claims payment practice was also noted as an important consideration, which is understandable, as it is at the point of claim that policyholders find out how effective the policy is in providing the expected benefit.
Data collected by Dexx&rindicates that the majority of claims are paid. The extent of declined claims is inevitably related to the individual circumstances of each claim and the wording of the policy document.
The trend to more generous definitions, for example, ‘own’ occupation TPD definitions, will to some extent result in more claims being paid in borderline cases.
Similarly, the introduction of partial trauma benefit payments for illnesses with lower severity thresholds will result in a greater number of claim payments in circumstances where the lifestyle impact on the insured is severe when a disease may only be at a moderate level of severity.
Price
The majority of panel participants have developed a substantial portfolio of risk clients and the product preferences and priorities reflect those relevant to advisers active in the upper echelons of the socio-economic scale.
The industry continues to offer products suitable across a wide range of occupations and incomes and affordability clearly becomes more important when considering the needs of those closer to average incomes.
This is the demographic where the extent of underinsurance is believed to be concentrated. In this market, affordability and hence price is an important factor.
Affordable cover is inevitably a compromise between features and definitions, with cost playing an important role in the equation.
Trauma products provide a good example of the cost/benefit equation.
In this year’s awards, the highest scoring trauma product, based on features and definitions, Asteron’s Recovery with Plus options, has, as would be expected, premiums at the upper end of the range.
The benefits provided in a fully optioned product, while desirable, may not be affordable for all clients. The same product without the plus options may be a more affordable solution.
The diversity in available products in each of the risk market segments enables advisers to cater for clients with a wide range of incomes and needs.
While lower cost products may have a lower feature and definition rating, they nonetheless play an important role in extending the availability of life cover to a wide range of Australians.
Mark Kachor is the managing director of Dexx&r .
