Damien Mu gets to grips with underinsurance, consumer distrust in the industry and how insurers can overcome it.
The life insurance industry has never been short of criticism and recent reforms have highlighted the need to take stock and reassess our value proposition. Fortunately, early indicators show that the industry is responding to the need to adapt and innovate in providing competitive and affordable policies that suit the needs of the consumer. But more can be done.
This article originally appeared in the Professional Planner Intelligence Series insurance app.
The chronic issue of underinsurance within the Australian market is well known – currently standing at more than $10 trillion, according to Rice Warner – and cannot be underestimated. While considerable progress has been made to cover more people, particularly through superannuation, the issue is now around the adequacy of that cover.
In the main, Australians with sufficient cover are those that receive financial advice, but the industry needs to do more to convince the majority of Australians about the need for life insurance and to build trust. Research from the Association of Financial Advisers (AFA) shows that 47 per cent of customers cite distrust as a key factor in why more people don’t take out life insurance policies.
Large task
While this is not new information, it continues to highlight that the industry has a large task ahead of it in altering these negative perceptions and closing the underinsurance gap. Australia is still one of the most underinsured nations in the developed world – ranking 16th for life insurance density and penetration. A real focus must remain on educating Australians so that they understand the need for life insurance.
Once that need is established, they can then consult an adviser about the appropriate level of cover or, within their superannuation fund, they can elect to take up the level of cover that meets their individual needs. However, insurers, advisers and superannuation funds need to recognise that this is a joint effort.
Collective action has a better chance of creating real behavioural change that emotionally engages the wider community in the concept of life insurance and how it can affect them personally. Any education campaign needs to incorporate a focus on the way we engage with both current and prospective policyholders. Evidence suggests consumers need more information about the claims process, which in turn would lead to significant improvements and efficiencies for both the insurer and, more importantly, the claimant.
Technological initiatives, such as apps and e-forms, are already beginning to do this, resulting in a more efficient, lower-cost offering to consumers, as well as speeding up the claims process by reducing the sheer volume of paper-based documentation.
Value proposition
While these initiatives are important, any reassessment of our value proposition must include a discussion of how we can better explain life insurance to younger Australians and the future generation of policyholders. How can we expect to create generational change in tackling underinsurance, as we have seen in Asian markets, if we are not prepared to invest in educating our kids about the importance of saving, investing, and how life insurance can enable them to have a better future?
There are examples of businesses that are doing this already. The National Australia Bank’s (NAB’s) Auskick program, for example, gives thousands of Australian children the chance to develop the fundamental motor skills for physical activity in a fun and engaging environment. In addition, it teaches them – and their parents – about the importance of staying healthy and saving for the future. How can we replicate this and show that life insurance is actually an investment in the future, rather than simply protection from it? The public sector also has a role to play here. Our high school education syllabus should offer subjects such as insurance, superannuation, investments and savings – at least at a basic level – to give children an understanding of these issues before they start their careers and families.
Pivotal juncture
Suffice to say, our industry has reached a pivotal juncture in its evolution. Underinsurance, consumer distrust, the need for improved awareness, and a period of unprecedented reform have shaken up operations and allowed us to take stock. To its credit, the industry has reacted and moved to implement more efficient, effective ways of working – but we need to think differently if we are to engage the next generation in order to address underinsurance. If we can do this, a larger proportion of consumers will have access to affordable, adequate levels of cover – and that has to be our ultimate objective.
