Direct life/risk almost valueless, says Synchron chair

14 September 2018

Nothing could better demonstrate how much consumers need advice when purchasing life insurance nor how valuable advisers are at claims time than the Royal Commission, according to the chairman of life/risk-focused dealer group Synchron, Michael Harrison.

In a column to be published in the next print edition of Money Management, Harrison said this week’s Royal Commission hearings had highlighted what Synchron had always believed to be true – “that direct life insurance is barely worth the paper it’s written on, that direct insurers will do almost anything to make a sale and that they will do almost nothing to honour their policies at claims time”.

Harrison pointed to statistics released by ASIC, prepared for the Royal Commission which revealed:

  • One in five direct life insurance policies were cancelled in the cooling-off period
  • One in four direct life insurance policies that remained in force beyond the cooling-off period were cancelled within 12 months
  • Three in five direct life insurance policies were cancelled within three years
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“This tells three things. Firstly, that consumers clearly did not highly value the policies being offered to them. If they did, the policies would not have been cancelled. Perhaps they didn’t understand what they were being offered. Perhaps they didn’t believe it was value for money. Perhaps, on reflection, they didn’t think they needed life insurance at all,” Harrison said.

“The second thing these statistics might tell us, is that the policies being offered were actually not of much value; that they were second rate, simply not worth the money.

“The third thing these statistics tell us is that advised life insurance is essential to the sustainability of the lifestyle of future families.”

Harrison said Synchron had always argued that life insurance advisers played an essential role in the protection of families and businesses against human risk.

“In our submissions to Trowbridge we stated that, “It is important to consider the traditional function of the IFA adviser in ‘field underwriting’. Experienced advisers get to know and understand their clients and recognise and explore potential medical issues in advance. This assists in acceptance and reduces incidents of non-disclosure. A fundamental issue in life insurance is the more that is known about a risk; the more accurately it can be priced’.”

“The Life Insurance Framework [LIF] legislation reduced adviser commissions by up to 50 per cent on the pretext that such a move would make life insurance more affordable for consumers, which would in turn improve the level of underinsurance and therefore help relieve the burden of burgeoning social welfare debt on Australia. In reality, premiums have actually risen since LIF and as a result of premium increases and the direct insurance debacle now being played out in the Royal Commission, trust in the industry has eroded.”

“This has potentially disastrous implications for Australia which faces two critical economic issues - underinsurance and welfare debt.” 

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The commodification of Life Insurance via direct business models over recent years as a cheap and easy product purchase opposed to a correctly analysed, assessed and personalised funding solution to the negative financial impact caused by unforseen events has been a disaster.
In addition to allowing the direct insurance business to multiply and create the significantly substandard result now being witnessed, the relentless pursuit and attack on professional risk insurance advisers and the conflicted process that was the LIF, has compromised the exceptional value that high quality, professional advisers can deliver to the Australian community in respect to the creation of a financial safety net for families, businesses and individuals alike and through that process allow people to be financially independent and to live with dignity when the alternative outcome could be devastating. The value of professional advice can deliver these benefits and place meaning and understanding around the implementation and purchase process.
Risk Insurance advisers need to be profitable in order to be able to sustain the level of service and advice required by their clients,to employ staff and manage their business.
The attack on adviser remuneration levels driven by totally inaccurate data regarding insurance policy churn was totally unnecessary and has resulted in what will be a destructive outcome for the sustainability of practices.
Following from the RC commission findings into the direct insurance issues, this business model should be banned entirely and personal risk insurance should only be able to be accessed via an authorised and professional adviser.
The days of grabbing some groceries and staring at a brochure at the checkout for the supermarkets own brand of Life Insurance product is over.
When people purchase product with little or no understanding of the process or the detail, the value associated with that product is diminished significantly and it's lifespan is reduced accordingly. The short term policy ownership issues with the direct insurance model is evidence of this.
If the current Liberal Govt had any courage and conviction at all, they would admit the process and the outcome surrounding the LIF was a failure and was based on perception rather than reality and re-think their approach entirely to allow the professional risk insurance advisers to be a profitable and sustainable component of a strong and viable financial services platform.
For a Govt to admit they got it wrong would be a big ask, but it would show a level of fortitude that would benefit the Australian public and ensure longevity of quality advice.
Legislation that has been driven by agendas rather than fact has been unacceptable and has not and will not achieve the right outcome.
If Scott Morrison wants and needs to show some leadership, then now is your time Prime Minister to stand up for what is right, rather than what is being fed to you from individuals and organisations that have a self-driven motive.

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