The new product called Income Protection Plus will offer applicants the choice of a Rate Saver or Time Saver plans. The Rate Saver product is designed for people who have the time to answer detailed health and lifestyle questions in return for more features, including higher cover, lower premiums, shorter waiting periods and longer benefit periods. InsuranceLine expects the Time Saver product to appeal to those people who want cover but without spending the time to answer lengthy questions upfront. 

Income Protection Plus features the option to extend cover to stay at home mums and dads, providing up to $3000 per month in the event they are unable to perform their regular duties around the home. Additionally this will cover people working in sectors such as mining and resources who may have previously found it difficult to obtain cover.

Historically many income protection products have excluded stay at home mums and dads and those working in an industry such as mining and natural resources.

It will also offer policyholders involuntary redundancy cover which provides three monthly payments of up to $3,000 in the event a policyholder loses their job.  The cover on the new product also extends to SME owners should their business be declared insolvent. 

John Hoyle, CEO of InsuranceLine, commented: “For too long there has been a one-size-fits-all approach to income protection in the direct insurance market and we think it’s time to give people greater flexibility to choose the level of cover and the features and benefits that best suit their needs.

With all the health issues and risks today, InsuranceLine is providing access to this important protection for more Australians. This new product is innovative and responds to the changing needs of consumers.  We know that it is important for people to be able to make promises to their family to protect and provide for them in all eventualities and this new product enables Australians to do just this.”

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I was concerned that I would not have anything more to worry about other than focus on my clients, helping them to navigate the post-GFC economy, convince them that the government really doesn’t see them as bourgeoisie simply because they save for the future, and protect them from unforeseen risks through insurance.

Ah, that last part, mundane risk insurance.  For well over 120 years, Australians have relied on financial planners and before that good old fashioned insurance salesman, to be the party-poopers that reminded them that, no, they won’t live for ever and even if they do, they might just get sick along the way.  You, dear reader, may not appreciate that these types of events can have a deleterious effect on one’s prosperity planning.

Despite this obvious risk and the fact that, generally, people do care about providing for their family if the unforeseen should happen, most people don’t have enough of the stuff. I’m told in the olden days, General Stores would have shelves full of insurance policies available for purchase.  They were priced at cost, plus a simple retail mark-up for the shop owner.

Sadly, most remained unsold.  Only a few customers that had just been to their doctor and received an unfortunate diagnosis were buying – everyone else was happy to wait and delude themselves that it would happen to somebody else or they’d get to it another day.

Now, this wasn’t a good outcome, especially for those insurance companies that wanted to profit from making the insurance.  Their only customers were ones that they didn’t want to insure in the first place.

But why wouldn’t people want buy the insurance? Well mainly because it wasn’t fun.  First up, you had to dwell on the nasty things that could happen, as well as contemplate your own demise.  But even after that, you had to fill in lots of forms, and ‘fess up to all the horrible diseases and ailments you had already suffered.  As if that weren’t enough, you then get to have a stranger show up with some needles to take blood, or perhaps strap machinery to your person and run on a treadmill while a physician does his best to provoke a heart attack.

Finally, after these indignities, you get a call from the underwriter (aka a faceless stranger) to advise you that those anal fissures actually could result in colon cancer so your premium will be 25% more than you thought and didn’t your doctor tell you about these?

So, perhaps it is unsurprising that the insurance companies realised that there needed to be an incentive involved, so they built in a commission system as a way of remunerating their agents.  In fact, they’ve even increased it over the years – upfront commissions have more than doubled since this author was first involved in the 1980s.

This commission system turned out to be the worst way to structure risk insurance distribution that was ever invented, apart from all the other ways (with apologies to Churchill).  Customers loved it, because if they changed their mind or got loaded or rejected, it didn’t cost them a cent if they didn’t go ahead.  Insurance companies loved it, because it gave them an incentivised distribution channel and allowed them to arbitrage accounting standards and tax law to increase profits.  And planners loved it, because if they worked hard they could earn a good living.

Commission is an appropriate remuneration method, beyond the obvious reasons of the marketplace.  It’s a reason that most of the schmexperts seem to forget.

It’s what I call ‘completion riskc – an economic risk which all parties expect is borne by the adviser.  And, until consumer behaviour changes, it’s why upfront commissions are entirely appropriate for discretionary risk insurance purchases.

You see, unlike investments, there is an independent third party to every insurance contract who decides whether it completes or not.  No matter how much the customer and the adviser want the cover to proceed, unless the underwriter agrees as well, it will not.  Hence, this means a certain proportion of proposals are not completed.

Who pays the adviser for their professional advice when this happens?  Answer: nobody.

Alternative answer (with extra points for thinking it through): all the other people who have insurance, indirectly through cross-subsidisation.

Now, more schmexperts have decided that, despite the unpleasant process of gaining insurance, despite the completion risk being borne, despite every other damn else thing  we have to do, there is a problem.  Financial planners are churning customers insurance just to keep getting upfront commissions for the sake of getting upfront commissions.

This is a serious problem that threatens the viability of our largest insurers.  They’ve swung their massive international resources behind getting this hitherto unknown issue onto the national agenda.  It’s so serious that they are relying totally on anecdotal evidence to make their case.

Apparently, there are some advisers out there that have a bunch of customers that don’t mind undergoing invasive medical investigations every couple of years just to help said adviser make some more commish. These nefarious planners threaten to bring the entire insurance industry to its knees by refusing to leave their customers with uncompetitive insurance rates.

I have to admit, I don’t know any of these personally.  I think I met one of these guys once, Fred someone-or-other but that was in the mid ‘90s at a conference and I don’t think he stayed past FSRA reform but then again I could be wrong. But I am assured that they are out there.

I have an alternative solution.  Let the insurance companies reduce premiums by the exact amount of the upfront commission they pay to advisers at the moment.  Let the clients pay a fee for my expertise in obtaining the cover, regardless of whether they are able to get any insurance or not.

If everyone did this, would our society be better served? Answer: No

Alternative answer (yes more extra points): No, because the marketplace is not ready for that concept yet.  Yes, it’s a beautiful Field of Dreams, but build that sucker and no-one will come, at least for the next ten years or so.

To read the first article in this series, ‘Experts schmexperts’ click here.

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Australia’s life insurance gap has reduced over the last six years, according to a new report from Rice Warner Actuaries.

As at June 2010, the overall level of underinsurance is $669 bn to meet the subsistence needs of families and dependants after death, which compares with $1,000 bn in 2005 on a like for like basis – a reduction of 33 per cent over the six years.

On an income replacement basis, the level of life underinsurance is $3,073 bn. Meanwhile, for total and permanent disability (TPD), the level of underinsurance sits at $7,182 bn and income protection underinsurance at $437 bn.

Michael Rice, Managing Director and Head of Strategy of Rice Warner Actuaries, attributes this shift to significant demographic, financial and life insurance market changes over the past six years and in particular, an increased focus on personal financial risks post-global financial crisis.

“Increased levels of personal insurance have been driven by an increase of default cover within superannuation, a greater focus on risk insurance by financial advisers and superannuation fund trustees as well as the growing direct life insurance market,” said Mr. Rice.

However, while the report points to a welcome development in the face of Australia’s continuing underinsurance problem, Mr. Rice warns we’re not out of the woods yet.
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“While the market is now providing a substantial proportion of subsistence life insurance cover, this is still only half the amount of cover required to ensure that family members and dependents can maintain their standard of living after the death of a parent or partner,” explained Mr. Rice.
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“Apart from individual detriment, underinsurance also comes at a substantial cost to the government. Currently the total cost to the government of life underinsurance across Australia is calculated to be $140 million per year as publically-funded social security benefits fill the gap. Meanwhile the situation regarding disability underinsurance is even more serious, costing the government nearly 9 times this amount!”
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Mr. Rice believes there are things the government could do in the short term to remove glaring distortions and inequalities in the market in order solve this ever-present problem.
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“The underinsurance issue would benefit from the government considering the removal of stamp duty from all life, total and permanent disability (TPD) and income protection policies; removal of GST on TPD and income protection products sold by General Insurers; equalization of the tax treatment of risk insurance inside and outside superannuation; and implementation of the proposed ‘scaled advice’ model with a particular focus on risk insurance.
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“While the report proves the issue of underinsurance is still a significant one for the financial services industry and the government in Australia, it also reveals a positive step in the right direction.”

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The Beaton IFA Market Pulse is a quarterly survey among financial advisers in Australia. The survey provides a platform for participating insurance providers to get feedback from advisers on topics of interest and gives advisers the opportunity to share their views and opinions on topical industry issues with their peers.
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Participating insurance providers are Asteron, AIA Life, CommInsure, Macquarie Life, OnePath and Zurich.
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The first wave of the survey was conducted between 21 March and 30 March 2011 with 528 advisers across Australia completing the survey.
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Advisers were asked to comment on the impact of the ban on their advice businesses, clients, and the insurance industry.
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Click Adviser Sentiment Report to read the full report, including some comments from financial advisers who participated in the survey.

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“Mr Oakeshott’s comments yesterday, and Senator Cormann’s endorsement of those comments,  reveal they recognise the serious impact opt-in will have on  members of their constituencies, including small and regional financial advice practices,” AFA CEO Richard Klipin said. “We also believe they recognise the flow-on adverse effect opt-in will have on ordinary consumers who, we believe, will ultimately be priced out of advice.”

Mr Klipin also said that Mr Oakeshott’s and Senator Cormann’s comments are an indication that the concerns expressed by the advice industry about the impact of FOFA are finally starting to be heard in Canberra.

“We have consistently argued that Minister Shorten has struck the wrong balance with the proposed FOFA  changes. A number of the FOFA elements are fundamentally poor policy – bad for consumers bad for advisers, bad for the industry and bad for the country,” Mr Klipin said. “FOFA fails to address  the real needs of consumers and, according to the AFA’s Back to Basics consumer research, will only drive up the price of advice and increase red tape for consumers, advisers, licensees and product providers, for no discernable consumer benefit. Ultimately, FOFA has failed to strike the right balance between improving advice outcomes on the one hand, whilst retaining access and affordability for all consumers on the other.”

Mr Klipin said that while Mr Oakeshott’s and Senator Cormann’s stances represent a glimmer of opportunity to change bad policy, the real battle had only just begun. “We cannot as an industry afford to be anything but committed to having our voices heard,” he said. “The strategy has moved from a policy to a political debate and advisers must continue to talk to their local Members of Parliament.

“We hope that common sense will prevail  and both Mr Oakeshott and Senator Cormann have demonstrated that they are listening  and understand the implications of heavy handed policy for no beneficial outcome.”

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The Natural Disaster Insurance Survey, to be released at the Institute of Actuaries Biennial Convention in Sydney today, surveyed Institute members across general and life insurance, banking, superannuation and wealth management, about future insurance industry and government involvement in a national solution for natural disasters.

“Members of the actuarial profession work across risk management, insurance and public policy, so are well placed to provide valuable insights into viable options for a nation-wide approach to natural disaster management,” said Peter McCarthy, Chair of the Institute’s General Insurance Practice Committee.

“Our Institute survey showed that nearly 55% of actuaries believed there was a role for a national insurer to provide a level of disaster coverage while 58% said there was a role for a national reinsurer,” said Mr McCarthy.

However, only one third of respondents said flood insurance should be made compulsory.

“The survey finding against making flood insurance compulsory (55%), with over 11% unsure, recognises that the end result is likely to be low risk households subsidising high risk households, which may discourage individual responsibility,” Mr McCarthy said.

“The overwhelming majority of the profession supports the existing risk-rated model for property insurance, with more than 73% of respondents rejecting community rating for flood insurance and 53% rejecting premiums being subsidised for high risk policyholders,” he said.

Another 54% thought government compensation payouts should be capped for those without insurance to discourage rebuilding in high risk areas while 95% said the government should introduce requirements to restrict new developments/properties in flood prone areas or introduce building codes to mitigate risk of flood on new properties.

In the context of how the insurance industry should respond to increased risk from natural disasters, 75% of respondents think insurance companies should offer incentives for mitigation measures, 70% think there should be more investment in data collection (eg, flood mapping), while more than half (57%) believe there should be uniform definitions for cover.

The survey findings will feed into the Institute’s policy making process.

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AXA Head of Product and Sales Capacity, Brad Collins said the programme, which commenced in 2009, has become an important part of the education programme for both AXA aligned and nonaligned advisers and their support staff.

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“The Risk Learning Programme aims to equip advisers and their support staff with specialist skills and knowledge. It contains core modules on effective client engagement and behavioural research.

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“The programme is designed to help advisers understand their clients and discuss risk insurance with compassion and sensitivity, which is often required on such a delicate issue “, he said.

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Mr Collins said there were two main workshops aimed at client engagement and dealing with grief.

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“We have developed our workshops after speaking with specialists who have excelled in the risk field and the feedback from the first two years has been overwhelming.

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“We have designed a flexible programme where advisers and adviser support staff can choose workshops which are most relevant for them, and all of which are run by AXA’s learning and development experts, which makes it unique in many ways,” he said.

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The programme, which commenced in 2009 has seen more than 250 advisers and support staff benefit. A further 75 advisers and support staff have already registered for workshops of the 2011 programme which commenced this week across the country.

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AMP Director of Wealth Protection Products Michael Paff said the enhancements will be offered to new as well as over 170,000 existing customers, who will be automatically upgraded at no additional cost.

“These developments are designed to ensure AMP’s insurance offering continues to be contemporary and compelling to our existing and new customers,” Mr Paff said.

Over 30 enhancements have been made to AMP Flexible Lifetime – Protection. These are strengthened by the product’s Automatic Plan Enhancement feature, which ensures claims that existing customers make after 28 March will not be denied for the new enhancements on the basis of a pre-existing condition.

Enhancements to AMP Flexible Lifetime – Protection include definition changes to Trauma insurance, changes to the Guaranteed Future Insurability feature for Income Protection and additional inbuilt Trauma features.

The Trauma insurance upgrade includes changes to five key trauma definitions, including Angioplasty and Cancer.

“Cancer is the most common form of Trauma claim with 76 per cent of AMP claims in 2010 attributed to cancer, so we wanted to broaden the cover available to our customers,” Mr Paff said.

Income Protection enhancements include increasing the maximum monthly benefit under the Guaranteed Future Insurability feature from $1,000 to $1,500 and the addition of occupationally acquired HIV and Hepatitis B or C as part of the inbuilt Trauma feature.

AMP has also made four significant improvements to its group insurance offer, including allowing Automatic Acceptance on plans with five or more members and increasing premium discounts on plans with up to 800 members.

“These upgrades are about making it easier for new group clients to gain access to insurance,” Mr Paff said.

Covering both retail and group insurance is the launch of an online claims concierge service, an extension of the phone-based service launched in May last year. This online service can be accessed via www.amp.com.au/claims and enables customers and planners to lodge a claim 24
hours a day and receive a response within 24 hours.

AMP has also realigned its underwriting teams to further enhance the support it provides its planners.

“As part of our commitment to make underwriting easier, we have recruited a number of regional underwriters and created dedicated underwriting teams for all planners,” Mr Paff said.

For more detailed information about all the enhancements please refer to http://www.amp.com.au/ampriskofferlaunch.

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