It’s no surprise that with the outbreak of the coronavirus pandemic, people are looking into their insurance policies to determine what they are covered for and what they need to consider for the future. David Spiteri, Insurance Specialist at Centrepoint Alliance shares his observations on how the life insurance environment has changed.
Have advisers seen a greater interest in life insurance due to the current outbreak?
There is a greater interest in life insurance by consumers, however I feel it may be for the wrong reasons. Since the outbreak, we have seen many clients lose their job. The impact of this is that people will look to cancel their health insurance policies, followed by life insurance. Many advisers are fielding calls from their clients either wanting to cancel or reduce their policies due to affordability. In saying this, many other clients are double checking their life insurance policies to ensure that they are covered for the Coronavirus pandemic. Thankfully, all insurers got on the front foot to communicate to clients and advisers that they are covered.
Prior to the outbreak, life insurers were seeing a surge in new business in particular in applications for “Agreed” value income protection as APRA was requiring life insurance companies to cease offering “Agreed” value policies from 1 April 2020. What hasn’t been reported is the amount of these applications in underwriting not going ahead due to applicants losing their job and not having an income to protect.
How should advisers be navigating life insurance given the current circumstances?
There is no better time than now to touch base with clients given that there is a reasonable chance that their financial circumstances may have changed. It is a time to give clients reassurance on the benefits of having their cover in place and what they are covered for.
Given the current circumstances, there is likely to be some clients who are now unemployed and having financial difficulties. Where advisers can help is by exploring the policies that are in place and detailing the options that may provide clients with some premium relief. Depending on the policy you may be able to access:
- Involuntary Unemployment Benefit. Many quality income protection policies have this benefit as a built-in feature whereby your client can receive a premium waiver for the income protection policy for up to three months.
- Premium Suspension. Most life insurance policies offer the option to suspend paying their premiums for up to 12 months. This feature can alleviate financial pressures for your client. After the suspension period the client can recommence their premiums and the policy will be put back in force without providing any further medical evidence. Although this may sound like a good option it is important to note that your client will not have any insurance cover during the suspension period and if any claim arises at a later date and was determined that it was first diagnosed during the suspension period will result in the claim being denied.
- Contact the Insurer. Many insurers in this current environment are very sympathetic to your client’s situation. The insurer may be able to offer some premium relief or a set up a payment plan for the short term.
- Reduction of Cover. Not that this is recommended, however an option to provide some financial relief to your client is to reassess their current insurances and reduce the sum insured. This is a much better option than cancelling the polices in full leaving your client exposed.
What are some of the innovative ways that advisers are adapting to the changing regulatory environment?
A changing regulatory environment can bring hardship for some and opportunities for others. The innovative advisers have implemented additional service offerings for clients which has created diversification of their income stream. From what I have seen, many “pure” risk advisers have implemented a claims management service whereby the newly introduced service will handle, manage, and monitor a claim from start to finish. Of course, advisers already do this for their existing clients but now the service has been extended to the general public.
In terms of life insurance, what are the biggest issues being faced?
In terms of life insurance, the two biggest issues being faced today are:
- Profitability of Income Protection products. As far as I am aware there is no Australian retail life insurer running a profitable income protection product. Insurers have lost around $3.7B on their income protection book over the last 5 years. I believe that it was appropriate for APRA to intervene and advise life insurers to discontinue “Agreed” value income protection products because I don’t think that insurers introduced this in fear of loss in the short term of market share. We will continue to see price increases in existing insurance books, in particular, the income protection policies written up as “Agreed” value.
- Lack of New Business writing. This is a combination of increased education standards (it’s estimated that there will be a significant reduction in adviser numbers, heavily weighted to the traditional “pure” Risk Insurance writers) and the last tranche of the reduced upfront commission levels will result in a reduction of new insurance writings in the retail insurance space. Advisers are telling me that unless the insurance premium is around $3,000 or greater, it is not viable for them to write. In addition, some of these “pure” risk advisers are having to diversify their services to reduce reliance on insurance writings, adding to the reduction of new business.
What does the future look like for the life insurance industry?
I expect the life insurance industry to change the way in which their current product suite are designed. I can see insurers designing products with very minimal benefits and features compared to what we have today. They will be very basic however the client will have the opportunity to build their policy with additional features and benefits as an option. An example of this could be a very plain income protection policy with the standard definition of disability that is required by APRA. An optional benefit may be available to expand the standard definition to the current 3-tiered definition that most retail insurers currently have. This example will reduce premiums significantly and clients will only pay for benefits and features that they want added.