New attempts to address under-insurance

Over the past six months, life companies have expanded their existing product range to include stand-alone total and permanent disability (TPD) benefits and superannuation versions of their existing term life products. The introduction of superannuation choice has acted as a catalyst for companies to provide a flexible range of benefits that can be mixed and matched as ordinary and superannuation business.

Risk product range

Financial planners can now provide clients with a range of different benefits, each sourced from a different company where appropriate. Advisers can also consider including death and TPD cover within a super fund, with trauma and disability income benefits outside super, while retaining access to multi-product discounts.

This enhanced range of benefit and ownership choices increases the number of options that advisers will need to take into account when structuring a client’s portfolio of risk products.

When considering these options, financial planners will also need to consider the impact of reasonable benefit limits (RBLs) and tax on benefit payments — a complex analysis that will vary with each client’s circumstances.

New features

Over the past 12 months non-medical limits have been increased, raising the thresholds at which blood tests or medicals are required. In many instances, however, the benefit of these higher thresholds have been limited as the requirement for a HIV/hepatitis test is now lower than the non-medical thresholds for those aged up to 45.

Several companies have also introduced programs to assist with application completion. These programs include:

utilising the services of external specialists to arrange a quick turn around of completed medical and personal medical attendant’s reports (PMARs);

using a para-medical service to visit the applicant, complete the personal statement and take blood samples; and

using a specialist call centre to complete the personal statement, minimising the amount of information the adviser needs to complete.

These initiatives are designed to make the sale completion process easier for experienced risk advisers and encourage more advisers to write risk business.

Lower life premiums

After several challenging years, most companies are reporting healthy profits on their risk portfolios, and in particular for lump sum business.

Higher levels of profitability, driven by a continued improvement in mortality experience, have led to some companies reducing premiums for term life benefits.

Lower premiums often receive a mixed reaction from advisers, as their income is premium-related.

The upside for their clients is that they can now afford to have either more of the basic cover or direct the premium savings towards purchasing additional benefits such as trauma cover or upgraded disability income cover.

Sales growth slows

The current edition of the Dexx&r Life Analysis data shows that sales of term, TPD and trauma business increased by 7.5 per cent during 2004. This growth rate was lower than that achieved in any of the past four years.

The industry enjoyed sales growth of 11.6 per cent in disability business in 2004, although half of this growth came from sales of packaged consumer credit style products that are not sold through the advice channel.

Removing the sales growth experienced by this company from the total leaves disability sales through the advice channel increasing by a much lower 5.5 per cent during 2004.

Recent research commissioned by AXA and undertaken by Dexx&r indicates that an overwhelming number of Australians have inadequate death and disability cover.

Flexible product packaging, improvements in underwriting and application completion coupled with lower premiums for death cover are positive measures that can assist advisers in redressing this situation.

Mark Kachor is managing director of Dexx&r .