How super’s changed life insurance

Jim Minto tracks how the life insurance industry has evolved, particularly with the advent of new superannuation channels. 

For hundreds of years life insurance has been performing a valuable role in society by repaying debts or providing capital to replace lost income when people have passed away been unable to work. Fast forward into the 21st century and life insurance is even more relevant than ever for both government and individuals alike.  

Traditionally, life insurance was about providing cover in the event that the breadwinner passed away. It meant that dependants had economic choices, whether it was clearing mortgages, catering for future education needs or simply paying the bills which allowed them to move forward with their lives. 

In more recent years, cost of living pressures have fostered growing interest in income protection that provides a monthly benefit for an individual for themselves or for a family if the breadwinner is sick through injury or illness and can’t work for a period of time.  

However, sometimes people might become so disabled they can never work again due to accident or major illness. In these cases, they might become what life insurers’ call totally and permanently disabled (TPD), and if so, they’re likely to be paid a TPD benefit as a lump sum.  

The other common type of cover these days is a cash lump sum that’s paid to provide a certain amount of financial independence while rehabilitating from a critical illness such as heart attack, stroke or cancer to get back to work. 

Most life cover in super 

However, affordability remains an ongoing issue for many Australians as they strive to rein in costs in an increasingly income constrained society. A growing number of consumers are making conscious choices about what they can and can’t afford within their household budgets.  

As a result, the number choosing to take out life insurance cover through their compulsory superannuation has grown exponentially in recent years.  

This is the single biggest development experienced by life insurers in the last decade. In fact, today, 67 per cent of all death cover and 88 per cent of all TPD insurance is held inside superannuation where the premiums are paid out of the earnings from the super scheme, rather than out of the household budget. 

With the life insurance market having grown six times in the last 15 years - due largely to uptake within superannuation - the message that it’s a good thing to have some financial protection now resonates strongly within the broader community.  

Whether consumers seek insurance advice from a financial adviser or planner or develop their own plan, the growing recognition of the need to protect their financial position - if they lose the ability to earn an income - explains why more people today have life insurance than don’t. 

The main concern today is most people do not have adequate cover to meet all of their future financial obligations and family aspirations should they not be able to work again. 

Changing consumer behaviour 

Beyond the uptake of life insurance through workplace superannuation arrangements, the second biggest development experienced by life insurers in the last decade is major changes in consumer behaviour due largely to better information through the use of the internet. 

In years past, much of the uptake of life insurance was driven by a life insurance agent or adviser actively convincing consumers they needed it, and drawing on tax breaks to get them over the line.  

In this traditional advice world, consumers would buy insurance and keep it for a long time, whereas today many people may only keep a life policy outside of super for a couple of years. While the market wasn’t designed to work this way, that’s the way consumers want it to work and the insurance market has had no choice but to respond. 

Admittedly, while some people are still seeking advice, the provision of life insurance via workplace superannuation which offers online access to statements - plus the birth of the direct to consumer channel - means consumers have more options and are far more engaged than they used to be.  

Due largely to the internet, Gens X and Y - the masters of digital technology - have a much greater awareness of the life insurance than their parents did, as TAL’s own consumer research has shown. In fact, it’s the desire of Gen X and Y to do everything online - research, understand and make choices - that is forcing the life insurance market to change dramatically. 

What we’re finding is that younger consumers often have the greatest understanding of risks and their protection needs. They want to get involved and use their laptops and other mobile devices to do this research.  

Meeting consumer needs 

Interestingly, while record levels of claims are being paid, some consumers remain suspicious of the insurance sector, thinking a future claim might not be paid. In response to these concerns as well as changing consumer behaviour, there’s been a strong move by life insurers to make complicated and hard to understand products much simpler and a lot more user friendly.  

Helping consumers better understand life insurance is a big priority. 

Whether it’s through the direct channel or via an adviser or collective superannuation arrangements, we need to make financial protection available in the way consumers want it, when they want it and for as long as they want it. 

Jim Minto is group chief executive officer and managing director of TAL.