New data shows life insurance provides immense value, yet many Australians are turning their back on this crucial safety net. A government review may be about to change the situation.
New industry statistics show that life insurance remains one of the best value safety nets consumers can buy – yet many people remain underinsured.
The industry approved 96.4% of life cover claims on average and took just 1.5 months to pay last year when a financial adviser was involved, according to data from the regulator1.
Advisers, who can help navigate the claims process, are playing a key role with just 90% of claims approved when a policy is sold directly through an insurer. The worst insurer selling direct to the public approved only 83.1% of claims.
Yet despite this data showing life insurers are quick, efficient and approve most claims, fewer people are buying insurance.
The total sum insured decreased by 17% and 19% for death and total permanent disability (TPD) cover respectively since June 2018, according to a separate analysis of APRA data by actuarial from Rice Warner2.
The government tick of approval
Sales have been partially hurt by new regulations affecting superannuation and financial advisers, yet the government has shown its support for the industry and the benefits it provides. The Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, told an industry gathering in April the story of a small business owner in his 40s who was struck down with cancer3.
“He stepped away from the business, but he still had bills to pay and a family to provide for. So, he made a claim on his trauma insurance. The insurance meant he was able to keep his business afloat and keep his family living comfortably.”
The government has now tasked Treasury to review how current regulatory settings are working and whether they are helping deliver quality financial advice and adequate life insurance to the community.
“When hardworking Australians take out life insurance products, they take personal responsibility for the wellbeing of their dependents. Working Australians are wise to save for a rainy day – they are even wiser to take out insurance.”
While the drop in recent life insurance sales has been across all channels – advised, non-advised or through super – getting financial advice ensures cover meets your unique needs.
“It therefore goes without saying that consumers should, wherever possible, have access to high-quality advice when making these decisions,” she said. “Advisers will play an increasingly important professional role in the lives of Australians.”
Yet, only 20% of Australians are insured through an adviser, according to Hume3.
Treasury set to review life insurance reforms
While most people have life insurance attached to their super funds, sales of individual life insurance policies may have been affected by recent commission cuts.
Commissions, which help subsidise the cost of advice, were reduced in 2018 through the Life Insurance Framework (LIF). Hume says commissions are only a problem when they influence the advice provided.
“I recognise that a fat fee charged for advice can be a challenging business proposition. Consumers struggle to understand what they are paying for. They may not have the cash to pay upfront themselves,” Hume said.
“In short, the problem is when an adviser receives conflicted remuneration.”
Treasury will next year review the impact of commission cuts and how they have affected advice. It will also look at a range of other recent regulation to ensure Australians have better access to advice.
How to check whether your life insurer is value for money
The corporate regulator recently launched a new portal that allows Australians to compare the claims and payout times of life insurance products sold through different channels.
ASIC’s MoneySmart Life Insurance site explains the different types of life insurance cover and ensures Australians know what to look for before purchasing cover.
The key feature is its life insurance comparison tool, which allows people to compare the percentage of claims a life insurance company pays out, how long an insurance company takes to pay a claim, and the number of disputes consumers have lodged about claims with an insurer.
To review your life insurance cover, contact your adviser.