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.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at tahn.sharpe@conexusfinancial.com.au
2 comments on “Almost half of risk clients don’t trust their insurer”
  1. Avatar Jeremy Wright

    The Metlife report is like all reports, in that the data retrieved is only as good as the questions asked, over a broad and extensive participant base.

    ASIC did a very limited review of 230 files of high risk advisers and from that limited review, assumed that most advisers were doing the wrong thing, which has led to the disaster the Retail Life Insurance Industry and millions of Australians now face, where the Industry is being decimated by over regulation and their incorrect interpretation of churn which ASIC admitted later was wrong.

    It is a double edged sword when limited information, becomes the basis of regulation.

  2. Avatar Christoph Schnelle

    Ha! “70 per cent of consumers preferred to pay an upfront fee with lower premiums over the lifetime of the policy.” – I wonder what the survey answers would be if the upfront fee is specified as $1,500 – $5,000 and payable whether the offered policy is acceptable or not. At the very least the survey should have asked what level of upfront fee would be acceptable.

    Re the perception of insurance companies not paying up.
    It seems that quite a few policies sold in the 70s to 90s were misrepresented and people thought they were covered for more than they were and were outraged when no payment was forthcoming. Some stories I heard were worse than that.

    I would even today be very uncomfortable to make a TPD claim through an industry fund and at least one very large industry fund has a TPD definition that is much more restrictive than you would expect. That will likely lead to very angry and disappointed claimants.

    I also came across a person whose partner had stage 3 cancer and, after a year, will go back to work, however they felt entitled to be able to make a TPD or terminal illness claim and emphasised their claim with some force. Such a person will likely tell a lot of people (including a TV audience?) that you can’t trust insurance companies even though they had a very bad health experience but not a claim, as they didn’t pay for trauma or IP cover.

    As in any big market, there are issues on both sides and our expertise is particularly helpful here as insurance agents. It is quite a good feeling to be able in many cases to both offer the best value deal and the most suitable offer for clients, rather than only one of the two.

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