Lauren Styles - The Smart Fox
a month ago · 7 min read
Financial Services policy makers and regulators have been remarkably busy over the last few months. We had announcements from Labor politicians stating their goal is the remove commissions from life insurance policies, which is likely to see specialist life insurance advice become unobtainable to the average Australian. Then Labor MP Andrew Leigh stated that new APRA life insurance claims data “doesn’t paint a great picture for people who go to an adviser and buy life insurance?”
It is important to regulate and monitor insurance policies to avoid consumers suffering from product failure, however our politicians are barking up the wrong tree if they are planning to develop future policy from this APRA data alone. An insurance policy is simply a solution to meet a need. It would be far more prudent for government to consider the importance of advice being a vital part of the mix that goes with the product solution.
Looking at the overall picture for advised clients, Government will find these Australians are more likely to have appropriate insurance policies that meet their needs, when compared to the unadvised client who just holds a policy in a group super fund.
Over 18 years ago when I began specialising in life insurance, Australia had a major underinsurance problem. The recently released Underinsurance in Australia 2020 report from consulting and research firm Rice Warner has shown this underinsurance issue is not going away, with a tremendous cost to the government in social security benefits linked to underinsurance.
Encouraging Australians to seek appropriate advice is the best way to tackle this issue.
As an adviser, I have an obligation to understand my client’s personal situation and then provide advice that is in their best interest. I will normally attempt to underwrite a client into a retail policy as I have always deemed group super policies to be inferior options (some examples of why will follow below). However, if it is in the client’s best interest to retain their group super policy, that is exactly what will happen. It is quite common for both group and retail policies to be appropriate.
Going back to the APRA report, whilst I don’t know the specific dynamics of how insurers report their claim declines to APRA, what I do know is an insurance policy is a promise from a life office to pay a claim when the claimant meets the terms outlined in the policy document.
Genuine claims are paid, regardless of whether the policy is a group super or retail policy.
So, if genuine claims are paid, how could it be that the statistics show that group super has a higher claim admittance rate than advised policies? There could be a few reasons for this.
The first is retail policies must be underwritten, allowing the insurer to fully assess an applicant’s medical history and make a decision to manage their risk of a future claim on that policy. This could mean exclusions to claimable events are applied to a policy. In this instance, it is likely an adviser would be helping their client make a claim against their retained group super policy should it provide coverage for a claim where a retail policy has an exclusion.
Secondly, advisers are not Claim Assessors. Whilst we will discuss the potential validity of a claim with a client, we will generally submit a claim even if we think it will be declined. Whilst this could increase the decline rate reported to APRA, from a claimant’s perspective, it can be a worthwhile process as occasionally I have been surprised to see a claim paid when I expected a decline.
So why do I deem group policies to be inferior to a retail policy? Here are some reasons:
It is easy to see why consumers would be confused about the cover they have in their industry super fund. Remember, whether it be retail or group super, the insurance policy is a means of providing a solution to the consumer’s need.
Focussing on claim payment ratios between retail and group super offers little value to the consumer. Instead, our politicians must consider the overall picture for consumers and encourage them to seek advice relevant to their personal situation, where the appropriate solution can be implemented.