The underwriting terms of some direct life insurance products could be damaging the reputation of the broader life insurance sector, says the head of the Association of Financial Advisers (AFA).
The chief executive officer of the AFA, Brad Fox, says when consumers suffer a poor experience with direct-sold insurance products it is often financial planners and advisers who step in to clean up the mess.
“By underwriting at claim time, what sort of damage is being done to the ‘brand’ of life insurance?” Fox says.
Fox posed the question to representatives from the life insurance operations of TAL, Clearview and ANZ, during a question-and-answer session at Financial Services Council (FSC) life insurance conference held in Sydney yesterday.
Many direct-sold life insurance products, such as certain types of accidental death cover, are sold with no underwriting at the time of policy implementation. The speed and ease of having such a policy approved is often a key selling point for the consumer.
But in cases where consumers do not fully understand such policy details at the time of sale, considerable hardship can result if they try to claim and find they are ineligible due excluded medical conditions or other exclusions.
The corollary of this is that such individuals’ overall perception of life insurance in its many forms can be damaged beyond repair, with this negative outlook often also flowing onto family and friends.
“I’m not against direct insurance, there’s definitely still a space for this, it should work in parallel [with retail life insurance]. But we’ve got to be sure that the way it’s structured today isn’t damaging the life insurance brand of tomorrow,” says Fox.
He explains that direct life insurance policyholders, who have had claims rejected because underwriting is only conducted in cases where a claim is initiated, often approach AFA members.
The people involved in such claims processes are often quite distressed, having recently lost a loved one or suffered a similarly difficult life event.
While advisers have no obligation to assist in such cases, Fox says that some will take the work on pro bono, “[as the people] just desperately want help”.
In other instances, even where claims are underway, he says the often drawn out process sometimes leads people to approach a financial adviser out of frustration, seeking help with the claim.
“They can become worn out by the lengthy paperwork of the claims process,” Fox says.
He also says that direct life insurance policies can create good opportunities for financial advisers, with customers often converting to more comprehensive retail policies at a later stage. But he says there are differing views among the adviser community.
“Some say [direct insurance] is a positive, by creating greater awareness…and also most advisers are confident that, if put up against a direct policy, they can beat it,” Fox says, highlighting the fact that retail life policies are often cheaper for a comparable level of cover, plus bring the added value of adviser support.
“But others don’t like it, and that’s due to the switching element,” he says, referring to the danger that policyholders might swap to a less comprehensive direct policy from a full retail policy.
“In these cases, they’re not comparing apples with apples,” Fox adds, suggesting that maybe there should be a more detailed disclosure statement addressing the potential comparisons that some pre-insured consumers may make.
The AFA’s stance on underwriting at claim time for direct life insurance policies is part of its submission to the Financial System Inquiry that is currently underway.
