APLs dictating product development
Rice Warner Actuaries has released a report on trauma insurance criticising excessive insurable amounts and the product’s slavery to authorised product lists.
The Rice Warner Actuaries report states that despite the large number of products in the Australian marketplace, trauma insurance is “effectively a commodity product with very little differentiation other than on price and service”.
“This is driven in part by planners’ increasing reliance on product research ratings as a basis for their recommendations, which means that insurers which offer less than fully featured products often don’t make the dealer group’s recommended list.”
While the number of insured events in trauma products is increasing, the report shows that comparing the premiums of different trauma products reveals a relatively low claims incidence for most events outside the ‘big four’ — cancer, heart attack, stroke and coronary artery surgery.
The report also suggests the creation of an industry standard for definitions of insurable events.
“In the early days, there was a wide variation in definitions, but more recently there has been some convergence. Part of this has been driven by standardised medical tests, which are more powerful than those in use 20 years ago,” the report states.
“With product convergence, it is arguable whether the industry should continue with different forms of wording. It would simplify matters if there were standard industry wording for definitions.”
Rice Warner said that while all 16 companies offering trauma products in the Australian marketplace offer cover of $1 million or more, “it is difficult to see where there is a realistic need for amounts this large”.
The report suggests “insurance up to $100,000 is reasonable”.
“Unfortunately, many sales of trauma insurance are made for excessive sums insured rather than to meet realistic needs.”
Rice Warner’s research confirms that trauma cover is generally more expensive than total and permanent disablement (TPD) cover.
“This has interesting implications for financial planners when clients have limited budgets — should they buy trauma cover for what are generally temporary financial needs resulting from medical events or cheaper TPD cover for circumstances when they are unlikely to earn significant income again?”
Rice Warner said that despite a 20-year life span in Australia, trauma take-up rates remain relatively low.
Currently, almost all sales of trauma products are made through financial advisers, although there are now some products offered directly to the public. Rice Warner believes this is likely to change, with trauma products to be sold without advice in the future.
Recommended for you
At the halfway point of the year, consolidation pressures continue to drive financial services M&A with three areas identified as targets for asset and wealth managers, according to PwC’s mid-year outlook.
With advisers expressing a reluctance to invest in cryptocurrency, advised clients are tending to have a smaller allocation to the asset than their unadvised peers.
After surviving significant evolutions of the Australian financial advice industry, The Advisers Association is now celebrating a century of advocating for advisers.
ASIC is calling on licensees to review their client onboarding practices to avoid vulnerabilities associated with share sale fraud, noting particular concerns in the use of white labelling services.
