Consumers have remarkably little faith in the willingness of their insurers to pay out in the event of a life insurance claim, a recent report from Metlife has found.
According to the insurer’s Understanding the Adviser-Client Relationship Report 2019, 46 per cent of consumers and 64 per cent of small-to-medium enterprises with life insurance policies “have concerns” about whether their insurance company would pay out in the event of a claim.
This comes despite recent figures from ASIC touting much higher payout figures across all categories in 2018, with insurers paying out on 96 per cent of death claims, 95 per cent of income protection claims and 87 per cent of TPD claims.
The report – which surveyed 1,298 respondents, noted that 797 had purchased a life insurance policy through a financial adviser, indicating that while consumers value the expertise of an adviser that doesn’t necessarily translate into trusting insurers or their products.
The report goes on to argue that the high percentage of untrusting consumers presents an opportunity for advisers to help, as those consumers “appear to need this reassurance”. Metlife then put the onus on financial planners and risk specialists to put clients at ease.
“Advisers can be more transparent about what products they are recommending for their clients and why they are suited, so that these concerns can be put to rest,” the reports states.
The insurance industry is in the middle of making a concerted effort to win the trust of consumers, regulators and policymakers in the lead up to the government’s review into insurance commissions in 2021. Its partnership with advice is crucial as direct life insurance has a poor record; a 2018 report (587) from ASIC revealed a decline rate of 15 per cent for direct life policies, prompting ASIC Chair James Shipton to state: “…cancellation rates and poor claim outcomes show that people are being sold products they don’t want, can’t afford, or don’t perform as they expected.”
The Metlife report also tackles the insurance commissions debate, and notes that 72 per cent of consumers believed removing commissions would result in more people being underinsured. According to the insurer, 70 per cent of consumers preferred to pay an upfront fee with lower premiums over the lifetime of the policy.
The commissions debate was a focal point of the Professional Planner risk advice summit in October, where Association of Financial Advisers CEO Phil Kewin said having to justify the retention of insurance commissions “bemused” him.
“What other industry has to justify something that the general public isn’t complaining about?” Kewin said.