An underinsurance gap of about $1.1 trillion for working Australians represents a significant opportunity for financial planners, according to a study commissioned by the Financial Services Council (FSC).
Around three in four people believe life insurance is purely “death cover”, with financial planners facing an uphill battle to convince clients of the value of life insurance, according to the study.
It found consumers are largely disengaged when it comes to life insurance, with a large swathe of people unaware, apathetic or uninformed about the role life insurance plays, found the report, which was prepared by GfK Australia.
Reverse the perception
“We have to change the way we interact with the consumer. We need to reverse the perception that life insurance is not bought but sold, and start designing life solutions customised to individual needs and life stages,” says Damien Green, chief executive officer of Metlife Australia.
“At an industry level, this is a real heads-up for the life insurance industry and for the government.”
Some of the practical approaches Green says financial planners can take in to help convince clients of the benefits of life insurance are by using “simplicity in language, simple products, and harnessing channels like superannuation that make it easier for people in terms of cash flow”.
Green says the government also has a big role to play in adopting a carrot-and-stick approach to help overcome the problem.
“The report pointed to the need for direct action from the government to incentivise people to cover their risk – such as by introducing additional tax burdens [for people without insurance], or equally tax breaks if they do take it up,” Green says.
Social security benefits
Premature death alone is estimated to cost the government $29 million annually. A 10-year case study also found that some $340 million in social security benefits could be saved in the first year of improved cover, with this figure growing to $2.5 billion in the tenth year.
“In general, financial planners and advisers are often targeting high net worth clients, who are similarly looking for advice. That’s probably been operating quite well.
“But I think that the mass of middle Australia is grossly underinsured. We make the point that superannuation is key – perhaps what planners can do in this process is to start thinking more about how they can leverage this [for consumers],” Green says.
Questioning the effectiveness of current life insurance sales practice, the study also found that talking about the risk of losing income in the next 12 months has no impact on take-up, regardless of whether it’s a 25 per cent, 50 per cent or 75 per cent risk.
Unaware of cover
The research also showed that even among those who do have life insurance, around 66 per cent of policyholders are unaware how much they are covered for.
“I think planners do a fantastic job. They’ve been the only group in the community helping those Australians that do buy adequate cover to buy it.
“The key learning here is that people don’t understand it – how many more people would take it up if they did?”
Hey, 95% of my income comes from insurance and my observation is that most people would rather read a treatise on Haemorrhoids than find out more about insurance. I have developed a 12 minute education/presentation for new clients that consists of testimonials, changes of losing the family home through illness etc. as apposed to death, plus simple diagrams that explain the working of different policies. Another bonus is that my clients tend to have an high ‘Insurance IQ’, so their eyes don’t immediately glaze over. In general, people would rather plan their next holiday than address insurance needs.