Underinsurance is a concern for the Australian community. However, Financial Services Council chief John Brogden believes the combined government and industry efforts could reduce the so-called 'insurance gap'.
Taking out sufficient life and income protection insurance is one of – if not the most – important financial decision a person can make.
Life insurance is at the heart of every individual’s financial health. Increasingly, this is being recognised by the community, the Government, and the wider financial services industry.
At the same time as the industry is becoming more prominent, it is also undergoing significant change driven by the market, demographics, government reform and industry self-regulation.
Getting these reforms right and adjusting to change is important if the goal for life insurance is to be achieved – that is, more people having adequate cover.
Australians are chronically underinsured, with research confirming just 5 per cent of Australians have the right amount of life insurance cover.
However, research by KPMG has also shown that Australians who receive financial advice are at least four times more likely to hold any life insurance cover than those who do not receive advice.
They are also more adequately insured, holding on average more than two and a half times the level of cover than those who do not receive financial advice.
Changes to improve confidence in financial advice, such as requiring financial planners to act in the best interest of their clients, will go a long way to improving the take-up of life insurance.
The industry is also responding to changes to the market to meet consumer demand.
Changes in distribution channels that are already underway will continue in 2012.
Group insurance continues to mature, with levels of cover increasing significantly.
This is a highly competitive segment and will only become more competitive as MySuper brings with it an obligation on trustees to develop an insurance strategy that addresses the insurance needs of their membership.
The direct channel has led to innovation in the industry.
It has seen strategic partnerships between companies such as AIA and Priceline, Swiss Re and Woolworths, and the launch of creative campaigns such as Million Dollar Woman.
With the regulatory headwinds facing other channels, competition in this segment is expected to intensify further.
However, there is no doubt that claims experience is tightening. Managing this shift will be critical to the industry’s capital position and profitability and the affordability of insurance.
The industry is also taking action to address underinsurance in Australia. The Lifewise campaign was launched in 2009 to engage with consumers and raise awareness of life insurance.
This campaign is not designed to sell insurance – rather, it promotes awareness among consumers and also assists financial advisers to communicate and calculate “how much is enough?”.
Lifewise has been embraced by the general public, and in particular, young families and mothers through a presence at parenting shows across Australia.
Australia’s high level of underinsurance is reflected through the average results for those using the Lifewise calculator, where the average existing cover was just $130,000 compared to the average suggested level of cover of $582,000.
Australia’s high level of underinsurance is a concern for the community, the Government and the industry.
Through reforms to improve confidence, changes to group insurance through Stronger Super, the growth in the direct-to-consumer channel and support in raising consumer awareness through the Lifewise campaign, the ‘insurance gap’ can be reduced.
If the financial services industry and the Government can get this right it will be good for business, but more importantly, good for the community.
John Brogden is the chief executive officer of the Financial Services Council.
