Reframing insurance as an investment in financial security

Life insurance is viewed as a secondary measure of financial security, behind saving and investing, despite around a third of adult Australians being covered by some form of insurance, according to research from Investment Trends.

The ‘2024 Consumer Insurance Needs Report’ found that out of 20 million adult Australians, 6.7 million are covered by some form of life insurance.

On a scale from zero to 10 (with 10 being most important to financial security), those who had a partner and children considered life insurance (6.5) to be less important than investing (7.1) or saving (8.0). Those figures were little different for those who were partnered with no kids, single and living with a parent, or single and living alone – all prioritised life insurance behind savings and investments.

Investment Trends head of research Irene Guiamatsia says that before commencing this research she had a good appreciation of the immensity of the insurance gap, but wanted to dig further.

“People don’t proactively go out there and seek insurance,” Guiamatsia tells Professional Planner.

“The original question for us was ‘why?’. Certainly, if you look at financial security and you want to build up wealth, you also need to protect yourself and your family from financial risk.”

Guiamatsia says people don’t naturally think about protection in the same way they think about savings or investments, which people can see grow over time.

“But for protection, whether it’s protecting your assets or protecting your health, that lack of tangibility consumers have creates a bit of distance in their own appreciation for how that contributes to their financial security,” she says.

“We have identified that as an area that insurers need to proactively work at demonstrating to consumers.”

Whether this oversight is due to consumers’ negative connotations towards insurance, in that it is seen as a lifeline in a worst-case scenario rather than as a wealth creator, Guiamatsia says the answer is nuanced.

“Perhaps yes in the case of life insurance but not so much in the case home and contents insurance,” Guiamatsia says.

“We’ve seen that Australian consumers proactively want to talk about home insurance in the wake of the past few years with floods and natural disasters.”

Leaving a mark

While the regulators and government have sought to keep pressure on insurers over rising premium costs – APRA and ASIC released a joint letter in December about how they will continue to monitor the pricing decisions – the research found consumers will value brand recognition (39 per cent) over recommendations from an adviser (29 per cent), and premiums (23 per cent).

That may very well justify spending on large-scale branding projects, like sports teams or stadiums – for example, Zurich sponsors Melbourne Demons, Allianz sponsors the eponymous stadium in Sydney (among others around the world), while TAL is a corporate partner of the Sydney Swans.

Overseas, Metlife has naming rights of the American Football stadium home to the New York Giants and New York Jets, while AIA is the shirt sponsor of English Premier League club Tottenham Hotspur.

Guiamatsia says the report suggested such investments in branding are well thought out.

“The fact that brand is such a dominant factor in driving selection shouldn’t come as a big surprise,” Guiamatsia says.

“If the whole premise is that we’re looking for protection…you want a secure one. That’s one aspect that’s quite dominant, irrespective of the type of insurance you’re talking about.”

For consumers who are not choosing an insurance provider for the first time and are open to engaging with another insurer, branding is relegated to a lower preference.

In this circumstance, lower premiums were the highest factor (58 per cent), followed by better rewards and benefits (29 per cent), and branding (27 per cent).

“There, they’re looking for a few things – lower premiums but not just that they expect lower premiums but they’re also looking for better digital engagement which I thought was interesting from an insurance point of view, and also recognition of loyalty,” Guiamatsia says.

“Those additional themes could maybe help new entrants develop a differentiated proposition. The reality with brand is that they it can take a lot of time to build brand equity.”

When it came to client satisfaction and digital engagement, Zurich led with the highest client net promotor score.