Lack of insurance advice leaving behind underinsured consumers

MLC Life Insurance Adviser Ratings life insurance financial advice risk advice

14 September 2023
| By Laura Dew |
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Less than half of advisers have written a life insurance policy in the last six months, according to Adviser Ratings, as Integrity Life scraps its retail advised channel.

Earlier this month, Integrity Life announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels.

The firm, part of Integrity Group, attributed the “difficult decision” to a substantial reduction in financial advisers providing risk advice over the last five years and a declining market.

Chief executive and managing director, Sean McCormack, said it was a necessary decision to make given significant challenges in the Australian life market coupled with the realities of growing a business.

Data this week from Adviser Ratings showed out of just over 15,000 advisers, 6,373 wrote a policy between January and June 2023.

When broken down further, 1,324 advisers wrote 75 per cent of all retail life premiums, with just 127 making up one quarter. The remainder is then covered by more than 5,000 advisers. 

In addition to this, a Deloitte report in August, titled Mind the Gap, found the reduction in risk advice was creating a large gap of underadvised and underinsured consumers. This covered those in the vulnerable, mass and mass affluent consumers, who needed medium complex advice.

“A significant number of advisers selling risk products have exited the Australian market post the royal commission and the recent wave of regulatory change. As such, remaining advisers are moving further up the market and focused on serving high-net-worth individuals. In addition, default cover from group insurance might only fully address the needs of low-income consumers. 

“Taken together, the reduced group cover and difficulty (and expense) of receiving insurance advice in Australia leaves a large gap of underadvised and underinsured customers within the middle-income bracket.”

Angus Woods, founder of Adviser Ratings, said: “As advisers have shifted to servicing more retirees and ‘riskies’ have fled in droves, underinsurance is worse than ever.

“If the top line is immovable, will broader technology solutions, the Quality of Advice Review or adviser recruitment help bridge the gap?

“Technology and customer centricity will play a role, but government incentives such as rebates or tax deductibility on death insurance should also be on the table. And will super funds and group life play a larger role?”

Deloitte suggested digitally enabled advice and digital ecosystems could help as well as the possibility of generative AI, as has been used for insurance in the US.

“This gap represents a sizeable potential customer pool for life insurers, with the opportunity to develop lower-cost, digitally enabled advice propositions to support the distribution of risk products. Exploring with generative AI may offer this ability to engage with and advise this segment digitally and autonomously.”

The advice gap was particularly prevalent among Australians aged over 65 and Millennials, who required two different propositions, with older Australians seeking annuities and long-term care insurance while Millennials needed education and digital channels.

“The number of older Australians is growing rapidly, with the population aged 65 years and over expected to double to 6.4–6.7 million by 2042. The ageing population requires tailored insurance products that address their specific needs at the retirement stage, such as unique longevity and financial/liquidity challenges," Deloitte said.

“Millennial customers on the other hand tend to prioritise high-quality, digital experiences, which can require significant upfront investments in infrastructure and innovative customer propositions. 

“Furthermore, although perceived as financially frivolous, Millennials are prudent spenders and are conscious about extracting maximum value for money. As such, life insurers need to provide greater product and pricing transparency to better engage and articulate their value to this younger customer segment,” Deloitte stated in the report. 

Earlier this year, Money Management reported how risk advisers were 2.4–2.5 times more likely to leave the financial advice industry than their holistic adviser counterparts during 2020–2022.

Adviser Ratings’ ARdata Life Insurance Study recorded 150 ‘pure risk’ advisers, representing less than 1 per cent of total advisers. 

MLC Life Insurance also stated that it believes life insurers should be able to provide simple, personal advice under the Quality of Advice Review in the same way as superannuation funds. 

The firm said it is “virtually impossible” for insurers to help members with simple queries about their coverage or provide advice that suits their personal circumstances.

The reason given by Stephen Jones, Minister for Financial Services, for starting with super funds rather than insurers is that super funds are subject to different regulation and fiduciary obligations.

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Submitted by Tim Chalke on Thu, 2023-09-14 10:51

If insurers and super funds are authorised to provide personal advice it will further undermine adviser's abilities to provide good advice to clients and be a disincentive to advisers remaining in the Risk space.

Risk advisers like all advisers have done the hard yards to meet ASIC qualifications required to provide personal advice, so why should super and insurer employees be able to provide personal advice without meeting the same standards?

Submitted by Ross Smith on Thu, 2023-09-14 11:00

Before Covid pandemic, DFAT reported there were > 1 million Australians working and living overseas, creating new wealth for Australia's primary capital markets. However, the underwriting policy of Australian insurance companies owned and controlled by multinationals refuse to insure Australian and New Zealand expatriates and their related families, even though they are in low risk DFAT1 rated countries. We have risk writers in Hong Kong, Singapore, Dubai and Abu Dhabi, and only 1 insurer at present accepts them, when ASIC requires our SOA to present 3 competitive quotations. Hon Stephen Jones, in the Australian Constitution it states that there should not be trade restrictions based on borders. For example, Zurich Life Australia in 2010 refused Distribution Agreement with Shenton Limited [AFSL 342895] so from 2012, we were placing A$100K new premium business with Macquarie Life until 2016 when Zurich Australia bought it. On 22 September 2016, Shenton Limited intervened in Federal Court of Australia for the takeover and in front of Judge Foster, Zurich agreed to pay renewal commissions on exiting business, but this Competition Judge did not issue Orders for Zurich to accept continuing new business from Shenton Limited. Hon Stephen Jones, in the interests of all Australian citizens your Government needs to pass new Legislation so Australian families overseas need to be covered by life insurance, because the previous Government passed Legislation that expats on return to Australia, need to pay income taxes for 10 years (5 of which must be continuous) before they qualify for any Social Security benefits. This Legislated tax-time gap needs to be covered with Disability Income Protection, Critical Illness trauma covers etc, which is more important than multinational profits. Minister Jones, please give Aussies overseas "a fair go".

Submitted by Rob on Thu, 2023-09-14 11:12

Oh My Goodness!........Surprise, Surprise, Surprise. The LIF framework so vehemently pursued by government and insurers saw adviser compliance work and legal liability risk quadruple and adviser income (i.e. commission) slashed by 40% and now you all wonder why so few advisers are writing risk.....Simple!!!.....because it's not worth it. It's not commercially viable in so many cases and consumers are certainly not willing to pay what it costs an adviser to deliver sound and compliant risk advice. Slash any other professions income by 40% and see how that plays out. Tell Lawyers they're copping a 40% pay cut and they will stop giving legal advice. Tell bricklayers they're copping a 40% pay cut and they will stop building your houses. All advisers warned you ivory tower dwelling Einstein's this would happen but you didn't listen and now see the mess you've created. Fewer Advisers writing risk = less new business = insurers increasing premiums to cover costs = more insured consumers cancelling policies because the cost is too high = insurers increasing premiums further = insurers exiting the market, etc, etc, etc. It's all been on a downward spiral ever since the powers that be felt that advisers were getting paid too much for their professional endeavours. Solution......set commissions back to at least 80/20 to bring back some semblance of commercial viability so that advisers can afford to get back to delivering this type of advice again.

Submitted by Anon on Thu, 2023-09-14 12:55

The timing of this article is brilliant. Just had a phone call literally 10 mins ago from a client who received a renewal statement for her Income Protection with one of the major insurers. I'll sum it up briefly - client said: I want to cancel this policy as I cannot afford a 20%+ increase which seems to occur each year I get my renewal documentation. The reality is that the middle class who need the insurance can't afford it and the wealthy clients who can afford it don't need it as much as the middle class. Advisers have switched off writing life insurance and the figures in the article confirm this. Even if commissions were put back up to 100%+, I don't believe this would make a difference as it is the affordability of obtaining and holding onto existing cover for the middle class which is the main issue not the number of advisers who are active in the Life insurance space. The middle class know they need the insurance however the life insurance industry has priced itself out of the reach of middle Australia. Every time I ask the insurers directly what's up with the insurance premium rises each year, they keep harping on about claims / the rate of returns of their internal cash pool. They have NO solution to the insane premium rises clients are getting hit with each year - NONE. I believe this is called a death loop which is used to describe the same mess the private health insurance industry is currently in. No new young clients coming in (as they can't afford to) to prop up the old and sick. As a result, those who hold the insurance keep paying more and more each year until they drop out altogether as they can't afford it (ie. my client I just spoke to). This is the issue, period. The Life insurance industry is not dying, it's dead - game over. The next few years will see more consolidation of existing players or exists altogether. Lucky for Aussies, we have a government with endless cash to fund all future long term sick or injured people........all the best peeps.

Submitted by Old Fella on Sat, 2023-09-16 17:15

Curious that so many clients in 2023 don't require insurance. Although I trust my former peers to always meet their obligations to the client by doing a needs analysis.

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