Which way to cover?

Kate Cowling

By

April 20, 2018

A Professional Planner Roundtable, sponsored by ANZ Wealth

The insurance industry must adopt a smarter way of doing business if it wants to deliver the best client experience, change public perception and get more Australians insured, a roundtable has said.

While the sector faces several challenges, including a lack of trust among consumers and pricing pressure that has the potential to curtail choice, stakeholders have identified several solutions that could help the industry flourish. They include the simplification of documents, the development of products that better meet the market’s changing needs and investment in technology to boost engagement.

Gerard Kerr, head of life insurance at ANZ Wealth, said the industry was at a crossroads, with the Parliamentary Joint Committee’s inquiry into life insurance likely to change the way insurance is delivered to customers. However, he was optimistic this would ultimately lead to new opportunities for the sector.

“It’s a shake-up we’ve had to have,” Kerr said.

THE ADVICE PERSPECTIVE

Specialist risk advisers said the delivery of life insurance needed to be simplified, as the time and cost of preparing advice were pushing insurance out of the reach of those who need it most.

Charles Cornell, partner and financial planner at PSK Financial Services, said “the people who really need it” had been underserved.
It is something he would like to see addressed at a policy level.

Scott Anderson, risk insurance specialist adviser at Manly Financial Services, acknowledged great progress had been made in some areas, such as health and wellness programs and tele-underwriting, but more needed to be done to streamline the underwriting process.

“There must be a smarter way of getting business on the books quicker,” Anderson said. “It’s taking too long between the time the application is received and the time it gets signed off by the underwriters.”

There was a consensus in the room that clients demand simplicity, which must be reflected across the board from product design to terminology.

“There’s no doubt products need to become simpler,” Anderson said.

ANZ Wealth’s Kerr said many products had been designed “for a different world” and needed to be revisited for today’s customer. “We look at our products and ask, ‘How can we make them different or better?’” he said.

“Our new OneCare cover – Income Secure Essentials – is an example of OnePath innovating to address some of the feedback we’ve been receiving from advisers, mainly the need for more flexible and accessible covers.”

He recognised, however, that advisers have to weigh up new and innovative products against those with a track record. He acknowledged that advisers have to tick legal boxes and meet best-interests duty, which can present challenges if a product is new or a variation from those currently in the market.

Darryl Pereira, a partner at TurksLegal who specialises in life insurance, confirmed life insurance advice has been involved in an increasing number of disputes in the last few years.

“There’s a lot of tension between holding onto valuable existing cover and a client’s objective to look for cheaper products,” Pereira said. If a client is switched to a replacement product, there is an onus on the adviser to prove the advice is an appropriate fit, not only to the regulator but also to the client.

“One of the key things is how we demonstrate the client truly understood the advice and was prepared to go ahead with it, knowing the risks,” Pereira said.

Kerr added, “It’s obviously important that client needs and limitations are appropriately considered by advisers. Matching the right type of insurance to the client is critical. Defaulting to comprehensive cover isn’t the only effective way to reduce risk anymore.”

TACKLING UNDERINSURANCE THROUGH TRUST

Amid efforts to improve the advice process, stakeholders agreed more also needed to be done to improve the perception of the life insurance industry, with the end goal of getting more Australians insured. A lack of trust in the public sphere is something that is experienced from the adviser to the licensee to the insurer, and the room agreed collective action was necessary to correct myths about the claims experience.

Phil Kewin, chief executive of the Association of Financial Advisers, suggested the life-insurance industry publish its paid claims to dispel the notion that many go unpaid.

Wayne Handley, managing director of Bombora Advice, said associations could play a part in circulating positive life-insurance stories, while ANZ Wealth’s Kerr was hopeful having a code of practice would indicate to consumers that the industry was bound by a professional commitment. However, Ben Marshan, head of policy and government relations at the Financial Planning Association, said the Financial Services Council Code and other super fund codes were a “good start”, but were doing little to improve the public awareness of risk advice.

“[The codes] haven’t done anything to make it easier for consumers to understand [life insurance],” Marshan said. “Life-insurance contracts are difficult, those terms are difficult, the Product Disclosure Statements are difficult. There’s nothing easy about life-insurance products, but they should be easy.”

He called on the industry to make life insurance “easy to understand and easy to engage with”. One way that could be done is through investment in technology, the roundtable said. A whitepaper ANZ Wealth produced found Millennials, in particular, favour digital communication over face-to-face interactions and concluded the industry must find new ways to engage with that generation.

A PROFESSIONAL IDENTITY

To improve the perception of risk advice, there was also strong support for recognition of risk specialists, via a designation.

“In every other profession, you have a delineation between specialist areas, there should not be part-time risk advisers and I do not understand why the public aren’t entitled to know whether they are dealing with a professional risk adviser,” Bombora’s Handley said.

Marshan agreed the public should know if they are dealing with a risk specialist. For the AFA’s Kewin, one of the obstacles is recruiting – and retaining – talent in the risk arena.

“Our biggest challenge is just creating a reputation where people actually are excited about being in the financial advice industry,” he said.

THE MENTAL HEALTH IMPERATIVE

In terms of other prevailing challenges, claim exclusions on mental health grounds have been a big problem for the industry in the last few
years, advisers said. Despite growing recognition of the problem, there is still an urgency to address underwriting exclusions that don’t meet the commonsense test, Manly Financial Services’ Anderson said.

He said that, at the moment, a client might have a minor episode of anxiety and visit a doctor, then four years later find they are excluded based on that episode.

“It’s just ridiculous,” he said. “It needs to change; it can’t continue to go that way. We cannot sell that exclusion because we just don’t believe in it.”

His view is that such exclusions should not exist.

Dianna Pecherczyk, a senior financial planner at Diamond Blue Financial Services, said she had seen some improvement recently around
exclusions, but there was still a long way to go. She said she has had a couple of underwriters make better decisions around marriage counselling and reducing the mental health exclusion period from five years to three years.

ANZ Wealth’s Kerr said insurers were “trying to understand [it] more and looking to develop better solutions”. He said most insurers would like to get to a situation where mental health could be broken down into specific exclusions.

“These are areas we are now starting to see as opportunities for us,” he said. “As an insurer, we should be gravitating towards risk rather than walking away from it, and I really think we will start going there.”

THE OPPORTUNITY

While there was universal acknowledgement that the insurance sector faces numerous challenges, the roundtable participants agreed insurance has an important role in society and there’s an onus on the industry to get this chance at reform right. “Every challenge gives you an opportunity,” Kerr said.

For Pecherczyk and Cornell, the goal is giving clients fair advice at a price that they are willing to pay.

Meanwhile, the FPA’s Marshan said the industry could not afford to miss the opportunity to get more Australians interested in insurance
by making it simpler and more digestible.

“We need to look at technology, we need to embrace technology, and we need to look at how that will make advice cheaper to provide, how it will make it more efficient, how it will make the client want to pick it up on a regular basis when they are looking at MasterChef or My Kitchen Rules,” Marshan said.

He envisions a world where advised clients can easily consult their financial plan and figure out what they are covered for, how much they’re paying and “get excited about that fact”.

 

ANZ Wealth’s white paper Life Insurance: A case for change provides additional insights into current state, and emerging opportunities, for the life insurance industry in Australia.

 


TOPICS:   Australian Life Insurance

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