Where have all the clients gone?

Ask industry expert Mark Kachor, fromDexx&r, whether or not the Australian population is under-insured and his answer is “almost certainly”.

There are no definitive Australian statistics to back-up his assumption, but Kachor says given there are at most 4,000 advisers who specialise in writing risk and about 11 million Australians of insurable age (25-55, married with kids and debt), the likelihood of them all being adequately insured is extremely low.

While advisers outside those 4,000 risk specialists may also write risk, Kachor believes clients of non-specialist risk advisers probably have less cover than they need.

AXAgeneral manager, financial protection, Tassin Barnard, says that in the personal market, most clients have three times their current salary for income protection and superannuation life insurance, though seven times is considered the more appropriate amount of cover.

While AXA also knows of no definitive statistics on the Australian market, Barnard believes that in terms of under-insurance, the Australian experience is probably very similar to the American experience, where clients are typically under-insured.

Barnard says consumers must be better educated about the need for risk insurance, as well as the appropriate level of cover for their needs. She says it is amazing how little people know about their insurance needs until it is too late. They tend to assume that whatever they have will be enough.

A lack of education is also causing confusion about both the different types of cover available and the type that best suits a client’s needs, according to Barnard, such as a recent focus by advisers on selling income protection insurance.

She says that while income protection has been an easy sell in recent years, due to it being generally underpriced for all the ‘bells and whistles’ on offer (before a more recent premium hike), many people are ignoring term life insurance.

“What people don’t realise is that it’s not just income protection that’s needed. The ultimate disability is death — that is really going to disrupt your income.”

The ‘bells and whistles’ attached to income protection could also hinder risk insurance take-up.

Barnard says often the products available to consumers are over-designed, with more features than a client really needs.

“Either that is making it more expensive for customers, or alternatively they are buying what they don’t need,” she says.

She believes the industry should move towards a marketing model of product manufacturing, where the customer is brought back into the research and feedback loop.

Another deterrent for clients is what Barnard terms the “pretty daunting” application process. Application forms require clients to answer very personal questions and sometimes need to be supported by medical examinations and blood tests.

This can be quite a “sensitive clumsy process,” she says, which can lead them to give up halfway through — either because of the hassle or the possibility they may have to pay an extra premium for a minor health problem.

Ex-president of the Association of Financial Advisers and industry consultant, John Hibberd, agrees that not enough people understand insurance, and not a lot of clients think about it of their own accord.

The only time people think about risk protection is during major life events, such as when they take out a mortgage or have a child.

He agrees with Kachor that most financial planners don’t sell risk because it is very complicated, and can take “an horrendous amount of time” compared to other, cheaper ways of making money.

But Barnard says the sales culture attached to life insurance has deterred clients and has, of course, impacted on the market.

She says in order to change client perception about life advisers, the sales model needs to be challenged. The client must be engaged, she argues, in order to establish their real protection needs. This would help change this perception and lead to higher insurance levels.

While Kachor argues that the vast majority of the insurable population is under-insured, he is also certain the number of people who are insured has increased over the past 10 years, due largely to compulsory superannuation.

However, while Hibberd agrees that most clients today put their life insurance inside superannuation, he says most people aren’t aware of how much they have and that they can increase it within their super.

Phillips says clients are usually amenable to risk insurance if the situation is properly explained to them.

Arguments that advisers could put to their clients include the fact that no debt should last longer than the person who created it and that a person’s greatest asset is their future unearned income stream.

Hibberd says that life insurance is a very emotional thing, but advisers should remind their clients that when death occurs, the only person bringing a cheque to the estate is the life adviser.