Risk insurance certainly appears to be “flavour of the month” for many advisers during the global financial crisis (GFC). Many clients are wary of investing further for the long term due to continuing uncertainty as to the depth of the downturn and the likely timing of a recovery.
The overall atmosphere of fear has heightened customers’ awareness of risk in its broadest sense. Increasing unemployment has raised many people’s awareness of their vulnerability if they are unable to work – and so, they are reluctant to invest in this economic environment.
Many advisers have seen their income drop by up to 30 per cent, so it is timely to turn their attention to risk insurance. Successful sales of life insurance will diversify their portfolio and provide clients with valuable benefits.
So, for advisers who have specialised in investment and superannuation, how do they get started in risk? Do opportunities exist to develop an existing insurance practice or to start a new one? What assistance is available from life insurance companies?
THE MARKET OPPORTUNITY
A trend in the market that has occurred almost unnoticed over recent years is the increasing proportion of clients and potential clients who already have reasonable levels of existing risk insurance cover, either through their superannuation fund or elsewhere. The rise of default cover within employer-based superannuation has led to a significantly higher proportion of the working population having at least a minimal level of default cover.
More than 90 per cent of the employed working-age population now has default cover, although the figure for self-employed people is much lower.
This means that the advice process has become more complicated as it must take account of the cover the client already has in place and its particular features.
Default levels of cover are still relatively modest, and less than 5 per cent of superannuation fund members have opted for voluntary additional cover. Thus, the opportunities to up-sell risk insurance to those who already have cover through superannuation remain considerable.
In fact, we estimate the average level of cover amongst the working-age population is only around $181,000 of death cover, which represents 2.9 years’ average earnings.
If a crude measure of the need for death insurance were thought to be 10 years’ earnings, then current death insurance levels are, on average, less than one third of the overall need.
Furthermore, the levels of trauma and income protection insurance in the market are still small. For example, the average level of income protection cover across the working-age population is only around $580 per month, compared with average earnings of $5270 per month. Those who actually have income protection are generally well covered; so this statistic shows that a very high level of Australians don’t have any income protection insurance at all.
For practices with a lot of small business clients, opportunities exist to offer business insurance packages, perhaps building on the superannuation plan that may have been established for employees and directors.
Some insurers have developed tailored risk insurance packages for the small-to-medium-enterprise (SME) market, including standard documentation and other sales support material, enabling advisers to offer an integrated package, including:
- Group insurance for employees and directors (usually through superannuation);
- Key person insurance, to protect the business if key people are lost from the business due to death or disablement (ordinary business);
- hareholder insurance, to assist in transition planning upon the death or disablement of a shareholder (can be ordinary or superannuation); and
- Standard, easy-to-implement documentation to support implementation of the package for SME clients.
Clearly, the overall insurance need for each customer will vary significantly depending on their financial status, family and business situation, personal liabilities and a range of other factors. However, the opportunity to add value to clients through advice on risk insurance is considerable.
APPROVED PRODUCT LIST
Having identified market opportunities for increasing risk sales, the next step is to choose which insurers you would like to partner with.
Research and discussions with insurers will enable the most appropriate partners to be identified. If internal resources and expertise are not available to do this, then expert assistance is available.
There is a continuing debate across the industry as to the merits or otherwise of operating a restricted approved product list (APL) – in particular, in the field of risk insurance.
The advantage of a restricted list is that the adviser can leverage the support provided by a small number of chosen insurers in areas such as straight- through processing, electronic underwriting, case tracking (for example, through underwriting and claims) and customer relationship management. These can significantly reduce the amount of unproductive time and paperwork for advisers and therefore reduce costs for the benefit of their clients.
The disadvantage is often stated to be the lack of access to insurers that may have products suitable for clients in special circumstances. Most dealer groups with restricted product lists will allow advisers to place business outside the approved product list where specialist risk insurance needs arise. An example is a client with a particular occupation or pastime where a non-approved insurer is a specialist for that particular type of risk. There will also be cases where clients want to “top-up” an existing insurance policy that is not on the APL.
The increasing levels of technology support which insurers are able to deliver to advisers through web-based quotation tools, insurance needs calculators, online application forms, auto-underwriting engines, online fulfilment, underwriting and claims-tracking systems, and customer relationship management mean that focusing on a number of core insurers and leveraging the technology and related support they are able to provide is likely to be increasingly attractive to advisers.
INSURER BUSINESS DEVELOPMENT TEAMS
All the major insurers offer comprehensive business development support for advisers, co-ordinated through business development managers who will provide support in understanding the business processes and product offerings of their particular company.
The level of support provided by insurers tends to be tiered, with high-volume producers being offered greater support services. For example, higher producing advisers might qualify for complimentary training programs, more specialist telephone support and even access to a mobile underwriter. This is one of the benefits of having a smaller, rather than larger, approved product list.
For a relatively modest writer of risk with ambitions to expand, it is worth negotiating with selected insurers to obtain additional support. This might include, for example, assistance in reviewing the practice’s existing client database to identify potential leads for risk insurance and the development of tailored marketing campaigns.
TECHNOLOGY
Technology has advanced significantly in the risk insurance market over recent years. Most insurers now offer some form of electronic application process and many offer online assessments and acceptance of risk for clean cases. For advisers who are disinclined to delve into the detailed personal and medical circumstances of their clients or who wish to leverage the expertise of professionals in this area, some insurers offer tele-application and tele-underwriting services whereby their client can provide the personal statement information via telephone to an expert provided by the insurer and even obtain an initial underwriting decision in the same call.
The chart below shows the proportion of insurers in the adviser market who offer various application and business completion services.
REFERRALS
An alternative method of leveraging complimentary expertise from risk insurance experts is to operate a system of referrals whereby, if an insurance need is identified as part of the client’s financial needs analysis, they are referred to a risk specialist, either within the same dealership or elsewhere. The risk specialist can complete the insurance advice and this can be integrated into the overall financial plan.
In some cases it may be considered desirable to share business in this way in the interests of delivering a comprehensive financial plan for the client whilst still retaining some revenue from the sale of the risk insurance component.
Risk insurance is a specialist field and, in recent years there has been a trend towards either developing specialist skills internally or adopting a referral model.
TRAINING
Finally, the range of risk insurance training facilities offered by insurers is continually evolving, not only with standard fact sheets and newsletters being produced, but also online tutorial tools, professional development days and even dedicated training courses for advisers across a dealer group.
Technical support by telephone is becoming more deeply resourced by insurers as demand from advisers increases. The range of expert assistance available is increasing continuously, to cover areas such as tax, accounting, business risks and estate planning. These expert services are becoming more widely available.
In conclusion, relationships with customers are paramount and if an insurance need can be identiied through ongoing discussions with clients, there is a range of operational, technical and professional services that can easily be brought to bear to support advisers of all backgrounds and levels of risk insurance expertise in meeting that need for their clients.
Advisers interested in writing risk business should approach their dealer group about existing services. Where these do not exist, a risk expert should be consulted to set up the most appropriate structure after taking into account the levels of expertise within the group and the goal for new business.
