The Association of Financial Advisers (AFA)’s incoming National President, Marc Bineham has warned against direct life insurance channels which he said have inherent weaknesses when compared to advised retail life insurance.
“Consumer outcomes from direct and group life insurance do not measure up when compared with consumer outcomes from life insurance cover arranged by a professional financial adviser,” he said.
Mr Bineham said the AFA has carefully considered ASIC Report 498 (the Report) into life insurance claims and views the Report as an opportunity for both the life insurance industry and the financial advice profession to pursue a pathway towards greater public trust and understanding of life insurance.
“The Report was comprehensive and we commend ASIC for its wide-ranging investigations across the entire life insurance sector including group, direct and advised,” Mr Bineham said. “The Report gives the industry a chance to participate actively with the Government and regulator in this review and thereby earn the right to hold its social licence with the people of Australia.”
Life insurance plays a crucial role in Australian society. From the perspective of the individual, it gives Australians who hold life insurance policies the dignity and financial security so necessary in times of personal crisis. It also provides a buffer to the public sector by transferring the financial burden of these people from Government to life insurers during these times.
In 2015, $7.2 billion in life insurance claims was paid to over 80,000 Australian families. Seventy per cent of these claims (just over $5 billion) were paid via the retail life insurance channel, proving the value that financial advisers deliver to clients.
“Many AFA members provide professional life insurance advice to clients,” Mr Bineham said. “Life insurance advice is differentiated from the other ways of arranging life insurance in that a financial adviser bases recommendations on a client’s personal situation and needs, whatever they may be – for example, starting a first job and wanting to protect income with income protection; having a new baby on the way; funding a mortgage and school aged children and wanting to provide them with funds in the event of the unexpected. By seeing a financial adviser, people have the benefit of receiving an adviser’s expert advice on their specific life insurance needs; they have policies containing strong life insurance contracts, and often those policies represent better value than they can access by buying direct.”
Of the advised, group and direct insurance channels investigated by ASIC in the Report, retail advised life insurance provided better claims outcomes than group and direct.
“This is no coincidence, as life insurance advisers provide greater certainty to their clients in two ways,” Mr Bineham said. “Firstly, advised retail life insurance is underwritten at application time, rather than at claims time as is often the case with the other forms of life insurance. And secondly, financial advisers manage their clients’ claims.”
Mr Bineham said the adviser-client relationship is a powerful one, whereby the adviser’s legal responsibility is to the client and not the insurer, and thus advisers support clients in times of need – that is, if and when a client has to make a claim. “For many advisers, claims support is a badge of honour,” he said.
However, Mr Bineham also said the Report reveals that more work needs to be done to ensure that trust in life insurance grows and more Australians feel confident they have the right types and levels of life insurance in place.
“The AFA is committed to further raising standards in life insurance advice as it is crucial to the prosperity of Australia,” he said. “We will also continue to apply pressure on reforms to the non-advised channels to improve confidence and trust.”
