Taking the risk with insurance

New research suggests the publicity campaign by Government and industry to increase average life insurance levels is having some impact, but it will be years before anyone can realistically say Australians are adequately insured.

Research by Plan for Life reveals inflows to the life insurance risk market grew 10.9 per cent to $4.2 billion in the 12 months to June 2004.

The market — comprising both individual lump sum and individual income insurance, as well as group risk insurance — also recorded an 8.2 per cent growth in new premium sales.

However, life insurance analysts are not exactly jumping for joy over the figures considering the low base off which sales have grown and the current extent of underinsurance in Australia.

One analyst points to other recent research that reveals only about two per cent of Australians holds trauma insurance, compared to between 12 and 15 per cent in the UK.

Another says other research shows nearly 75 percent of all policies have a term/life benefit of $250,000 or less, which he describes as insignificant compared to the average level of debt in Australia.

Yet another says the Plan for Life survey results actually show static growth for retail life insurance sales when considered in isolation from the group component.

AMP head of product risk insurance Phil Densem says the really significant aspect of the survey is that new retail sales of term, trauma, total and permanent disability (TPD) and income protection insurance grew by only 4.9 per cent during the year.

“That seems to indicate the growth is coming from existing business, as a result of people getting older and automatically paying higher premiums, which in most cases are linked to CPI.”

Densem says the situation was even more pronounced for the combined retail sales of trauma and TPD, which increased by 2.1 per cent during the year.

“This puts retail sales for trauma and TPD at just about where they were in the 2003 financial year.”

Densem says the retail figures suggest planners are “either finding it more difficult to write insurance under Financial Services Reform (FSR), or have gone back to focusing on investment as this market has picked up”.

Describing the Plan for Life figures as consistent with past levels of growth, Dexx&r director Mark Kachor says Australians are going to “remain chronically underinsured in the short term because there simply isn’t enough planners selling risk”.

About 70 per cent of all term insurance, 90 per cent of all trauma insurance, and 95 per cent of all TPD insurance is sold through the advice channel, according to Kachor.

He added the group market was not showing the growth “one would expect if super funds members were voluntarily going out and increasing their cover”.

He says another key barrier to life industry growth is the high level of policy discontinuances by consumers across all categories each year.

“This is a real problem for the health of the risk sector, and shows no signs of abating from its current high level.”

Greater product innovation by industry may contribute to increasing new policy sales and reducing policy lapses, Kachor says, citing Aviva’s recent launch of trauma buy-back products as an example of industry innovation.

Asteron general manager sales and distribution Peter Jowett agrees that Australians would remain underinsured until the industry developed “simple, user-friendly products that are targeted at consumer needs”.

Describing the life industry as “extraordinarily introspective”, Jowett says the introduction of trauma insurance in the late 1980s had been the sole significant product innovation in the industry for 50 years.

He says there’s no such concept in the financial services industry as targeting different brands at different consumer segments, as seen in the travel industry, for example.

“As a result, there’s a huge opportunity out there for anyone who can be market focused and driven, and take seriously the goal of developing innovative products,” Jowett says.

“There’s still a tremendous need for disability income insurance, the levels of term insurance aren’t nearly high enough, and Australians don’t yet fully understand the role trauma insurance can play for them.”

Asteron’s newly launched Wealthstar product, a combination of wealth creation and risk insurance, was the result of in-depth market research of consumers and advisers, according to Jowett.

“The feedback from the research was that financial products in general are far too complex, and based on a ‘one-size-fits-all’ concept,” he says.

“The need for a single application and a single point of contact was also revealed.”

Association of Financial Advisers (AFA) president Robin Yates says the advent of FSRA was partly to blame for keeping Australians in a state of underinsurance.

According to Yates, many planners continue to ignore risk in their financial plans under FSR, because of the time and paperwork involved in selling policies.

He says risk advisers have effectively stopped insuring people aged 28 to 38, both male and female, and particularly non-smokers in that category.

“Most risk advisers today won’t touch it, because the cost involved in doing it is enormous,” he says.

“They’re taking a huge risk of being sued by their clients, but they’re prepared to accept this just to avoid filling out 60 pages of forms for someone to pay you commission of $110.40 or something.”

Yates says rather than the five pages required pre-FSR, providing a statement of advice and financial services guide is now far more onerous.

A survey by Zurich Financial Services Australia suggests there is also a discrepancy between what planners say they are doing in regard to life sales and what they are actually doing.

The results of the survey of more than 700 financial planners, risk advisers and general insurance brokers were presented at Zurich’s risk symposium earlier this year.

Zurich strategic marketing manager of life risk Marc Fabris says that three quarters of planners who responded to the survey by Willcott Research said they included risk within their financial plans.

“When you look at their revenues, however, that is clearly not the case,” Fabris says.

“They may say they include risk in client financial plans, but their income drawn from risk was only marginally more than for financial planners that said they do not do risk.”

He says the median income from risk for financial planners that claim to include risk was $31,000 per annum. While the income for those who don’t was $27,500.

“We can deduce from those figures that the majority income is from trail, from previously written risk.”

Based on the survey results, Fabris says Zurich is now trying to implement a referral program for planners to try to improve their business efficiencies in the risk market.

He says the survey also found that of the financial planners with referral programs in place, many did not have successful arrangements.

Zurich will also promote the program to the 10,000 mortgage brokers in Australia due to the greater likelihood of brokers referring risk clients on.

Tower Life is also looking at sourcing new business through alternative distribution channels, in tandem with its primary risk adviser market.

The company last month formed an alliance with Perth-based mortgage broker AFG, with the first sales expected to commence by the end of the year.

Tower Life national product manager ,risk insurance Mike Downey says the alliance was part of a strategy by Tower to “pursue alternative distribution channels through mortgage brokers or direct alliance partners”.

“We expect growth to continue steadily through the traditional adviser market, but, as with a number of life offices, we are looking for alternative distribution channels to source new business.”

Downey says the strategy was not so much driven by the volumes of business coming through advisers as by the decision by advisers to “concentrate on medium to high-net-worth clients, who can afford $2,500 plus average premiums”.

“We recognise this end of the market is going to be predominantly the space of the adviser in future, which leaves us no choice but to find other distribution channels if we are to tap the ‘middle’ Australia market.”

Downey said the strategy has coincided with growing demand by mortgage brokers to cross-sell other complementary products to their consumers.

“From their point of view risk insurance fits in nicely with the sale of a mortgage loan for $250,000.”

Laing Advisory Services principal Sue Laing sees “definite signs of advisers increasingly taking on the responsibility of advising on risk, whereas previously they disclaimed their way out of it”.

Laing says the growth in demand revealed by the Plan for Life survey is coming from better educated advisers rather than consumers, which she attributed to the advent of FSR.

“It’s probably still too early to think consumers are responding to the greater publicity from industry bodies and government over underinsurance,” Laing says.

She believes there are also signs of life companies paying greater attention to tailoring products or packages for the female market.

She does not expect “much discounting over the next decade of products that have been sensitive to price movements, such as trauma and income protection”.

“Term life has not been particularly sensitive to price movement, on the other hand, so it’s quite possible that as life expectancy increases we could see some discounting.”