Direct life/risk almost valueless, says Synchron chair
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
“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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