Taking the opportunity of a lifetime

Australia’s insurance industry has been doing it tough over the past three years, struggling with the consequences of world terrorism, natural disasters and the collapse of HIH Insurance.

The result of these events has been the creation of increasingly negative public perceptions towards insurance companies, particularly the extent to which their aggressive marketing of new products has not always been reflected in consumer satisfaction, particularly with respect to the claims handling.

This may explain why research commissioned byAXAand carried out byDexx&rhas revealed that most Australians are up to 75 per cent underinsured. However, AXA general manager financial protection Tassin Barnard says it is by no means the entire explanation.

Looking back over the past three years or so, she believes insurance companies were more focussed on competing with one another than focussed on what clients really wanted.

“We all wanted to grow faster than the competition and we tended to lose sight of the internal competencies in terms of underwriting and client claims experiences,” she says.

“It was a case of companies putting products out there and then deciding they couldn’t afford the claims bill — that led to some negative client claims experiences.

“We need clients to understand what we won’t pay and we haven’t done ourselves any favours by making our products really complicated,” Barnard says.

Her sentiments are backed byMLCgeneral manager, product development, Stephen Moore who acknowledges the industry found itself in a “competition spiral” in which it became too focussed on features and benefits.

Moore says that, recognising this, MLC’s concentration is now on making insurance more accessible to consumers and delivering products that are easier to understand.

However, he says that other sections of the financial services sector also have a role to play, from mortgage providers through to financial planners and superannuation funds.

Moore points to the increasing debt burden associated with the real estate boom and says that allied to the significant increase in debt levels, the finance sector has a responsibility to identify the risks.

MLC has backed its concerns about the need to identify and insure against risk, with documentation squarely aimed at consumers enjoining them to consider factors such as the need to cover the elimination of debt in the event of death or disability and the provision of an ongoing income for families.

Moore agrees that the underwriting requirements and extensive documentation entailed in obtaining income protection insurance has been onerous but that at MLC, at least, the process is being simplified.

The Dexx&r research commissioned by AXA, while making disturbing reading for risk executives, should also prompt them to contemplate the opportunities to grow their businesses.

Barnard is certainly alive to the possibilities, telling a recent conference that AXA expects growth in the 3 to 5 per cent range with “significant potential within our industry for increased sales — both to those who do not have any form of financial protection and to those whose current coverage is inadequate”.

Moore says that in real terms, underinsurance is worse from a consumer point of view than not being insured at all.

“At least if you’re not insured you have no expectations, but if you are underinsured then you’re likely to be shocked if something adverse occurs,” he says.

Moore and Barnard agree that one of the biggest factors resulting in Australians being broadly uninsured is a failure to understand precisely how much is necessary to cover death, disability and ongoing income for a family.

Both believe that the answer to this is a broadly-based consumer education program aimed at reinforcing the role of risk insurance in providing financial independence combined with improving product design, marketing positioning, underwriting and claims management.

Barnard refers to the psychological “$1 million barrier”.

“Too many people regard $1 million as being a lot of money when, in reality, it is not a great deal of money at all, and people need to be able to insure for that amount,” she says.

However, Barnard also agrees that $1 million has also represented a barrier for the underwriters, with the underwriting requirements still being substantially more onerous than for lesser amounts.

“We asked around 1,000 advisers how many of them had written insurance beyond the $1 million barrier and only a handful of them held up their hands,” she says.

“We recognised the $1 million as being a barrier and we tested our theories by targeting appropriate people and minimising the underwriting hurdles — the result was that we went from around 30 people in that category to more than 300 and that was all achieved in less than two months.”

Moore sees the issue slightly differently and in terms of the traditional “she’ll be right” attitude of Australians.

He says that many people probably suspect they might be underinsured but do little about it on the basis that they believe nothing bad is going to happen to them.

Moore says that this attitude is sometimes reinforced by the belief that life insurance cover attached to membership of a superannuation fund is sufficient to cover a person’s needs.

He says the reality is often very different, with people failing to understand that their requirements are going to be closer to $500,000 than the $100,000 to $150,000 death and disability cover provided by most superannuation funds.

This, says Moore, is a reality which has to be brought home to consumers, not only by the insurance companies but by financial advisers, banks and superannuation funds.