Households are facing unprecedented pressure to keep a roof over their heads, pushing life insurance cover down the list of essential items for households.
The economic conditions has forced the insurance sector to admit that it needs to find better ways to advocate for the importance of having life insurance policy.
The realisation comes due to research into cost of living pressures reveals that 44 per cent of Australians don’t have any life insurance and have no intention of taking out a policy in the future.
Conducted by Savvy and released last week, the research found 46 per cent of women and 42 per cent of men say they don’t have – and don’t want – a life insurance policy.
That leaves a little under a third with basic life insurance provided through their superannuation fund (33 per cent) and only 11 per cent who have taken out a life insurance policy through a dedicated provider.
The research shows even a temporary shortfall of income could provide disastrous for many families. Meanwhile, 13 per cent surveyed said they don’t have life insurance as of yet, but are considering buying a policy.
Meanwhile, net policy revenues dropped 6.3 per cent to $3.8 billion for the quarter ending 31 March, which highlights the impact that cost of living pressures are having on the life insurance sector.
It reported a net profit after tax of $1 million and a return on net assets of 3.8 per cent, which was slightly below the results from the previous year. These are the latest quarterly figures from APRA.
Risk products returned a net profit after tax of $872 million, while individual lump sum and individual disability income insurance business reported weaker profits than the previous year because of an increase in net policy expenses, the figures reveal.
Step up
Savvy CEO Bill Tsouvalas urged the insurance industry to make life insurance more appealing to those who think it’s out of reach.
“We’ve got to offer affordable options, educate people on the value of coverage, and let them customise policies to fit their needs,” he tells Professional Planner.
Digital solutions, transparency and teaming up with financial institutions can also make a real difference, as can looking for ways to build trust, he says.
The industry should look for ways to bundle income protection insurance, total and permanent disablement, trauma and accident policies to create value, he says.
“Alternatively, using one of them to entice customers in the door then upselling or cross-selling life insurance might be the right approach,” he says.
The research highlights the need for and the importance of educating Australians on life insurance, AIA chief partnership distribution officer Sam Tremethick adds.
Australia’s ‘she’ll be right’ attitude could be holding some back from securing a policy, he says.
“This is where education can play a key role: introducing consumers to not only the importance of insurance, but also, why we need to look after our overall health and wellbeing,” Tremethick says.
“Ultimately, we need to improve the narrative on the importance of advice. Financial advisers play an integral role in the financial wellbeing of consumers. Insurers must continue to champion the role of advisers and the importance of advice for Australians,” he says.
CALI chief executive Christine Cupitt says significant cost pressures only exacerbate the big life decisions and challenges Australians are facing.
“People take out life insurance because they want to protect themselves and their families,” she says.
“Australians continue to see the value of life insurance and we see that* reflected in stable policy revenue across the industry.”
Regulatory certainty and stability are critical for the future of the Australian life insurance industry, which is why the council support the implementation of the Quality of Advice Review recommendation on simplifying the advice process, Cupitt says.
“This includes improving customer service by providing simple advice to Australians when they’re purchasing their products directly from a life insurer,” she says.
“CALI and our members are united in our commitment to ensuring Australian life insurance is accessible, understandable and trusted.”
Got the life
Rebuilding trust is a critical part of the problem, with ASIC deputy chair Sarah Court lambasting MLC Life Insurance last month after a range of significant shortcomings were uncovered within the insurance brand.
The Federal Court has ordered MLC Life pay a $10 million penalty for failing to pay promised benefits, resulting from a lack of appropriate systems to administer its insurance policies.
The insurer has also provided $11.8 million in remediation to around 1,000 impacted customers.
“The failings recognised by the Court are the result of poor governance, poor controls and poor systems, such as legacy IT systems, MLC [Life] customers deserve to have their insurance policies administered properly,” Court said in a media release.
“Customers should be able to trust that their insurer will pay the benefits promised to them and keep them properly informed if there are changes to their policies.”
MLC Life was approached for comment on how the industry could improve, but it declined to comment.
The KPMG ‘Life Insurance Insights 2022’ report into the life insurance sector released last year found that new business rates continued to be low in 2021, while the number of lives insured by the market continues to decrease.
Research from Adviser Ratings found there is only 150 “pure risk” advisers, with a further 3400 advisers write at least some risk, which includes 1200 who carry “large books”.
The ‘2023 ARdata Life Insurance Study’ noted the rest of the profession either refer out to risk specialists, write a small amount of risk or none at all.
According to the Financial Services Council Australia, there are an estimated one million Australians underinsured for death/total and permanent disability and about 3.4 million underinsured for income protection insurance.
*Quote was updated on 2 June 2023 due to a transcription error.
