People seeking life insurance are unwilling to out of pocket fees and such a move after the Life Insurance Framework review in 2021 is likely to put expert life insurance help out of their reach, according to new research released by Zurich.
At the same time as a Money Management project has revealed substantial support for the continuing role of Australia’s life/risk advisers from within the most senior executive ranks of the life insurers, the Zurich research has sounded a warning on the consequences of abandoning a commissions-based approach after 2021.
Further, Zurich has called on all stakeholders – regulators, policymakers, financial advisers, insurers and consumers, to collaborate on the framework for the 2021 review saying it is essential to ensure the review is as robust and comprehensive as possible.
The Zurich research, undertaken by actuarial research house, Rice Warner revealed a significant disconnect between the cost of providing life insurance advice and the willingness of consumers to pay for that advice with only eight per cent of those surveyed indicating they would be willing to pay more than $1,000 out of their own pocket.
It found that, by contrast, 93 per cent of advisers said they would need to charge in excess of $1,000.
The research also found that almost 30 per cent of consumers said they were not willing to pay a fee at all, a finding which illustrated the size of the challenge ahead.
Commenting on the research, Zurich Life and Investments chief executive, Tim Bailey said the research confirmed the experience observed in other countries that consumer willingness to pay out of pocket fees for life insurance advice is very limited.
“To the extent that demand for life insurance generally coincides with major life events, for example taking on major debt such as a mortgage, or the birth of a child, we often see the paradox that the time when cover is most needed is also the time when household finances are most challenged,” he said. “Mandating an out-of-pocket fee to people in such circumstances, from 2021, is likely to put expert life insurance help out of reach at the worst possible time for them and would likely see people with inadequate or inappropriate cover, or worst still, no cover at all.”
Bailey said that, in these circumstances, a major priority for insurers and the advice profession, in partnership with ASIC and government, should be to help create a consistent and robust evidence base to be used by the many stakeholders who will shape the sector over the coming years.