Risk advice: new research underscores the importance of collaboration and consultation on future

From

Tim Bailey

Zurich has called for all stakeholders – regulators, policymakers, financial advisers, insurers and consumers – to collaborate on the framework for the 2021 ASIC review of life insurance advice.

This collaboration is essential to ensure the review, which will determine the choices consumers have in accessing expert help with life insurance, is as robust and comprehensive as possible.

The call out comes as Zurich Life & Investments CEO Tim Bailey announced the release of new research quantifying the extent to which consumers are unwilling to pay out-of-pocket fees for life insurance advice.

“We’ve seen across a number of sectors and a number of countries that consumer willingness to pay out of pocket fees for life insurance advice is very limited, usually due to financial constraints, so in a way these findings simply reinforce what we expected to be true”, said Bailey.

“To the extent that demand for life insurance generally coincides with major life events, for example taking on major debt such as a mortgage, or the birth of a child, we often see the paradox that the time when cover is most needed is also the time when household finances are most challenged.

“Mandating an out-of-pocket fee to people in such circumstances, from 2021, is likely to put expert life insurance help out of reach at the worst possible time for them and would likely see people with inadequate or inappropriate cover, or worst still, no cover at all.”

According to Bailey, a major priority for insurers and the advice profession, in partnership with ASIC and government, should be to help create a consistent and robust evidence base to be used by the many stakeholders who will shape the sector over the coming years.

“Life insurance is not without its complexities, and some of the commentary we have heard since the Royal Commission highlights a genuine lack of understanding of the sector and the interplay between the major channels and product types”, he said.

“For example, an appreciation of the differences between group and retail, the dynamics at play, and the role each plays in delivering positive consumer outcomes, does not seem to be evident in many discussions.

“Similarly, it is largely overlooked that since the implementation of LIF, up-front commission rates are now standardised, rendering one of the major objections to commissions – a fear of bias towards products or providers paying higher rates – effectively redundant”.

Zurich supports the Royal Commission recommendation that any consideration of life insurance advice be undertaken in 2021 as part of the ASIC review of the LIF reforms.

Background on Consumer Research

The study, conducted by Rice Warner on Zurich’s behalf, revealed a significant disconnect between the cost of providing life insurance advice and the willingness of consumers to pay for that advice, with only 8 percent of those surveyed indicating they were willing to pay more than $1,000 as an out of pocket fee. By contrast 93 percent of advisers said they would need to charge in excess of $1,000.

None of the consumers surveyed said they were willing to pay $2,000 or more, the amount that almost two thirds of advisers said they would need to charge.

Almost 30 percent of consumers said they were not willing to pay a fee at all, a finding which illustrates the size of the challenge ahead if expert help with life insurance is to remain within reach of everyday Australians.

The research examined the attitudes of 1,000 Australian adults towards a range of issues relating to life insurance advice.

Zurich has published the findings in a whitepaper ‘The Risk Advice Disconnect’, copies of which will be available from Zurich Business Development Managers.

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