UNDERINSURANCE EPIDEMIC IN AUSTRALIA
17 December 2013
Last week I came across Rice Warner’s latest ‘Underinsurance Australia’ in the latest Risk Info Magazine (you can read the full article here). Rice Warner was really able to give some valuable insights into this issue, and I wanted to expand on some of these a little and share a few observations.
The report found the median level of Income Protection cover is just 16% of needs. When looking for the reasons for this, it was suggested that Income Protection “requires more underwriting” and that “some people may be deterred by medicals”.
I believe that these points give us, as risk advisers, a great opportunity to educate our clients on the significant differences between Life Insurance i.e. Income Protection, Trauma Cover, TPD & Death Cover, and General Insurance i.e. Car, Buildings & Household Contents Insurance.
There is I believe, a tendency for people to lump ALL insurances into the one basket and assume they are all the same. However, it is essential that we as risk advisers draw a distinct line in the sand between Life Insurance and General Insurance, and educate our clients accordingly.
The 2 main differences between the two types of insurance are most notable when it comes to policy renewal time and claim time:
1) Policy renewal
Few risk advisers educate their clients on the huge benefit of life insurance policies being “guaranteed renewable” and “non-cancellable” by the Life Company. What this means is that once a life insured has been accepted and is on risk, the Life Company is obligated to cover the life insured for the entire life of the policy - irrespective of any adverse changes in the client’s circumstances which could result in them becoming a much higher risk of claiming.
Compare that to a general insurance policy where the insurance company can re-assess the terms at every annual renewal. Educating your clients on the “miracle” of guaranteed renewable and non-cancellable will also pre-empt the need for extensive underwriting. Ask your client: “If you were the underwriter and you only got one shot at you, and then you were stuck with you for the life of the policy, how much would you want to know about your health and your circumstances on the way into the policy?The answer of course is EVERYTHING! Hence the need for medicals, blood tests etc.
2) Claim time
A lot of people seem to think that ALL insurance companies will do anything they can to avoid paying claims, so what’s the point of getting the cover in the first place? In my experience this is the other way in which Life Insurance companies and General Insurance companies are polar opposites. Typically, General Insurance companies will do everything they can to avoid paying claims if they can within the terms and conditions of the policy, whereas Life Companies will generally bend over backwards to accommodate a claim providing it is within the terms and conditions of the policy, as they view paying claims as a marketing exercise.
Once these differences are made clear to clients, there will be much more willingness on their part to carry out whatever underwriting procedures are necessary, as they now realise that, once they are on cover, the goalposts can never be moved to their detriment during the life of the policy.