This article was produced in partnership with Zurich Financial Services Australia.
Windscreen insurance is a common feature of car insurance.
In some policies, it’s built in. Mostly, it’s an optional extra that can be added for an additional premium.
There are other options too, including roadside assistance and accident car hire, enabling consumers to customise their insurance, based on their needs and, importantly, budget.
But there isn’t the same level of flexibility in life insurance.
Life insurance products have remained largely the same for 40 years, with the exception of individual disability income insurance (IDII), which required unprecedented regulatory intervention in 2019 to force change to improve the product’s sustainability.
Sustainability, across the board, is a major issue for the industry, as it grapples with soaring claims, fewer lives in the insurance pool, and fewer financial advisers providing life insurance advice.
These challenges and their potential solutions were discussed at a Professional Planner roundtable on the sustainability of the retail life industry, held earlier this month in partnership with Zurich.
According to MBS Insurance co-chief executive officer Kris Mason consumers should be able to opt-in or opt-out of cover for certain conditions, such as mental health, in the same way they can for windscreen protection.
“At the current price point [for insurance], there’s an appetite for greater optionality,” he said.
“A lot of clients are looking to reduce their premiums, and insurance specialists should be able to provide options.”
For example, he said advised clients typically have comprehensive cover including income protection to age 65 so their reliance on total and permanent disability (TPD) insurance isn’t the same as someone who only has insurance through super.
“If a client can’t afford TPD because of cost-of-living pressures and other reasons, and excluding mental health can reduce their premium by 30 per cent – and enable them to keep [TPD] cover in place – that option should be available.”
Mason said consumers make choices and assessed trade-offs every day in many areas, including health insurance and general insurance, so they should be able to with life insurance.
Improving best practice
Bombora Advice managing director Wayne Handley said insurers commonly attributed price hikes to rising claims, in particular mental health-related claims, which had become a challenge for the industry and strengthened the case for greater policy innovation and client choice.
Recent data from Council of Australian Life Insurers showed an “unprecedented” 732 per cent increase in TPD claims for mental health for 30 to 40-year-olds over the past decade.
“If you asked most professional risk advisers, they’d say that they need product design that allows for more options,” Handley said, adding that advisers also needed greater regulatory clarity to address some of their concerns around advising clients to potentially reduce cover or rearrange cover to exclude certain benefits.
“Advisers should be empowered to use their professional judgement and that’s why ASIC needs to be part of the discussion,” he said.
“We need a more open and transparent relationship with our regulator. Without engagement with the regulator, it will be difficult to implement some of the changes that are required.”
The Australian Financial Complaints Authority is another key stakeholder that must be at the table, said Phil Anderson, general manager for policy at the Financial Advice Association.
“Risk cases are rare, but they can involve big dollars if you stuff something up, and it’s not just the adviser [that’s affected], but the licensee too,” he said.
“Licensees are definitely contributing to risk adverse practices, which adds to the fear that some advisers feel.”
The FAAA has urged ASIC to provide further guidance on best interest duty, particularly in relation to moving clients from legacy IDII products into contemporary products, which are typically less generous, albeit more affordable.
“Advisers need the confidence to move clients [to less generous cover] and give them options to reduce premiums, such as reducing the sum insured and changing their waiting period,” Anderson said.
Zurich Insurance has been open and transparent about its TPD experience in Australia, including higher than expected claims costs, that which mental health-related claims account for around 30 per cent of the claims
Other trends include people taking longer, in some cases two to three years after an incident, to lodge a claim, and some people holding more TPD insurance than they need, Zurich head of retail Jacqui Lennon said.
“Advisers typically recommend insurance to cover a person’s income until retirement,” she said.
“On top of that, many add insurance cover for permanent care which, based on our experience, is only needed in 23 per cent of cases. That can leave a lot of people overinsured, which can then add to the cost.”
To combat the issue, Zurich has split its TPD offer in two; maintaining traditional TPD cover while also creating an offer for the 23 per cent of people who need permanent care.
Lennon acknowledged that, in some cases, it was difficult for advisers to secure large TPD sums insured, adding that Zurich’s focus was on “providing the right amount of cover to customers in the most efficient way”.
“We’re looking seriously at the sustainability of TPD, including [examining] our product structure, underwriting guidelines and financial limits,” she said.
“We’re the first insurer to do something differently [in TPD] and it will be interesting to see how other insurers respond to the challenges they are also facing.”
Anderson called out the widespread practice of upfront premium discounting, which had “exploded in the past five years” and created a real problem in that it “automatically baked in material premium increases” in subsequent years.
Professional advisers are against premium discounting, Handley said.
“We don’t want anything to do with it, but we’re compelled because of best interest duty,” he said.
Anderson raised the possibility of further regulatory intervention to stamp out poor practices and boost sustainability.
“[APRA] has intervened before and demonstrated that it has the power to enact change, where it feels the industry is under threat so maybe it needs to send a message around some of the issues we’ve discussed, including premium discounting,” he said.

APRA general manager for life and health insurance Nancy Ma described the regulator’s action on IDII as “extraordinary and rare”, adding the prudential regulator had no plans to intervene in that way again.
“With IDII, the message was clear from the outset, and we said [to insurance companies] apply the learnings from IDII across your other products,” Ma said.
“Have we seen enough [action]? I think we’d certainty like to see a lot more. [On the other matters] I’m not sure if the obstacles are so insurmountable that the industry can’t self-correct. In terms of premium stability, it’s for the market to look at the underlying drivers and what’s possible.”
Ma questioned if the average policyholder needed all the “bells and whistles” and whether the abundance of built-in features and benefits made it difficult to build optionality into the system. She also highlighted the need for greater “operational efficiency” and the potential for new technology, like AI, to help drive down costs and, in turn, premiums.

CALI general manager for policy Michael Johnston said affordability was one of the association’s key priorities.
“Our mission, and the mission of all our members, is to make life insurance in Australia more accessible, more affordable and more understandable,” he said.
“We’re absolutely focused on sustainability and to achieve our goals there needs to be continued growth in the insurance pool.”
Advisers leading the way
Mason said the onus was not just on regulators, life companies and industry associations to solve the industry’s problems. Advisers could also do more to grow the insurance pool and improve the affordability of advice by becoming bigger and more efficient to deliver scale and cost benefits.
“I’m not an advocate of legislation to control price – there should be open competition in the market,” he said.
“We also don’t need more rules. The onus should be on businesses to have the right systems and processes in place to deliver good advice. We need to get away from everything being so granular so it’s just a case of; if you want to play in this space, here are the rules.”
At MBS, Mason and his team are putting business on the books up to 40 per cent faster than five years ago, due to “better systems and process, and greater automation”. The firm has also invested heavily in getting the right people in the right roles.
“We’re constantly driving down the cost of doing business internally,” he said.

SmartBrave Consulting managing director Brad Fox said AI had the power to deliver a “quantum shift” in productivity.
“We’re already seeing practices use AI to record client meetings, produce file notes and respond to emails,” he said.
“Advisers that have integrated AI into their businesses are getting a lot more work done and a lot quicker.”
Bombora’s Handley observed that a “two speed economy” existed in life insurance advice. On one hand, specialists like Bombora, MBS and Business Risk Solutions were thriving but, on the other hand, generalists were struggling.
“There are businesses that are flying and businesses that are dying, and specialisation is here to stay,” he said.

“Unless we work together and find a way to secure more people in the pool as quickly as possible, it’s going to be a very challenging time.”
Business Risk Solutions risk insurance specialist Anthony Campbell finds the biggest source of client referrals is other financial advisers.
“They accept that I am a specialist and I’m only going to do the risk, so we work together,” he said. “We talk to each other about our [shared] clients, and we meet with clients together.”
The future of life in advice
Of the approximately 15,500 financial advisers in Australia, Adviser Ratings data found there are only 532 risk specialists, with another 6600 advisers writing some risk.
Anderson described the situation as “confronting,” particularly for advisers who had to accept that they may not be best suited to meet their clients’ insurance advice needs.
“I imagine that, for some, their trail is very, very low, and they’re only talking about insurance a couple of times a year because they have to,” he said.
“That’s led an increasing number of businesses to form referral relationships and JVs [joint ventures], which is a far better solution than scoping out a client’s needs and doing nothing with the information because there’s no one inhouse who can do insurance.”
APRA’s Ma said the advice industry needed to attract younger clients, not just retirees and pre-retirees, to improve sustainability.
“On the retail side, we’re not seeing young lives come into the insurance pool and I think that has a lot to do with [a lack of] education,” she said.
“Without young, healthier lives in the pool, we will inevitably see higher claims and, in turn, higher premiums. It becomes a vicious cycle. Ideally, we want both sides [retail and group insurance] to be healthy and sustainable because, if not, then cross subsidisation becomes an issue and that has consequences from a financial soundness perspective.”
While group insurance inside superannuation played an extremely important role in providing a base level of cover across the population, for most people, it wasn’t enough, CALI’s Johnston said.
“Retail insurance gives people access to more tailored, flexible and adequate protection,” he said.
“Advisers play a really important role, and it needs to be easier for advisers to help people.”
Zurich’s Lennon concluded that securing the industry’s future and improving sustainability required action and collaboration from the whole ecosystem, citing problems with being the first to move in areas such as product innovation and removing upfront discounts.
“This ecosystem is really sensitive to any small change, be it price, features or structure, even if those changes are designed to improve premium affordability and stability,” she said.
“There are a lot of moving parts, which is why collaboration and engagement is crucial. We need to change the ecosystem to get the right outcomes for consumers.”
Despite the daunting task, Mason said the industry’s problems were “very easily fixable” so long as players acted in the best interests of consumers, made “some basic changes” and kept the communication lines open.
“There has been too much vested interest and too many people focused on how things will impact them instead of doing what’s best for consumers and the industry as a whole,” he said.