Russell Cain

Life Insurance Direct has done extensive research of more than 3,000 quotes from 32 brands to launch the 2016 Life Insurance Direct Quote Index. The research reveals that certain big brands are consistently overcharging on life insurance premiums.

“There are many misconceptions about which brands deliver value when it comes to life insurance,” said lifeinsurancedirect.com.au CEO Russell Cain. “We speak to people all the time who have no idea they are being overcharged on their premiums, or where to find good value.”

The 2016 Life Insurance Direct Quote Index has been enhanced to include premium data for policies sourced through 8 major Super funds, as well as the Direct and Retail policy markets. Thousands of quotes have been entered into the Quote Index, to allow consumers to directly compare premiums offered by the different brands.

The research reveals that a 45 year old male seeking $500,000 life insurance could pay premiums ranging from $41.00 to $132.43 per month, amounting to a difference of over $1000 annually.

“Interestingly, the research highlights that one insurer, owned by one of the four big banks have significantly reduced the premiums on their retail life insurance products from the 2015 data. The research confirms findings from 2015, that on average Direct life insurance policies are significantly more expensive than Retail policies,” Mr Cain said.

Mr Cain urges Australian families to do their research as life insurance premiums and policy benefits can vary dramatically between brands and distribution channels: “To avoid being overcharged on your life insurance premiums, be informed and shop around before you make a decision.”

Click here to view the 2016 Life Insurance Direct Quote Index.

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Russell Cain

Data collected over a three-year period by lifeinsurancedirect.com.au suggests that it’s now harder to get all forms of life insurance – life, income protection, trauma and total and permanent disability (TPD) – than it has been in the past.

LifeInsuranceDirect observed that in the period July-December 2012, the overall success rate for people applying for life insurance (insurability) was around 80 (80.04) per cent.

In the January-June 2015 period, insurability had dropped to almost 76 (75.85) per cent. “What the numbers tell us is that people are less insurable now than they used to be,” says LifeInsuranceDirect.com.au CEO Russell Cain. “But the real question is – why?”

The answer, he says, may lie in technology. “We are not underwriters, but what we have noticed is that, over time, life insurers have embraced the use of electronic applications and electronic applications make it quick and easy for insurers to detect certain risk factors and reject people on the basis of those risks. If, for example, the person applying for insurance has a certain pre-existing condition the computer can automatically reject the application. It’s just a simple matter of programming.”

Increasing claims may also be a factor. “We have observed that more people are being paid claims on insurance policies than in the past and we assume that’s been affecting the insurers’ bottom line. We therefore believe insurers and reinsurers have been tightening their guidelines around who they will and will not insure and technology makes this decision easier for them,” Mr Cain said. “What all this means in plain English is that we believe insurers are looking more closely at your health, occupation and pastimes before they agree to insure you.”

The disappointing reality of this Mr Cain said, “Is that while most industries are using technology and data to deliver more value to customers, life insurers and banks seem to be using it to grow their own profits.”

However, there is some good news and that is that insurability overall is reasonably high. “The overall success rate is around 78 (78.22) per cent, which suggests that most of us can get life insurance if we want it,” Mr Cain said. Lifeinsurancedirect.com.au has written a white paper on insurability – Will you be accepted?: Three years of statistics.

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Russell Cain

The recent reporting season has revealed that, despite crying poor, life insurers’ profits are still increasing, according to lifeinsurancedirect.com.au.

LifeInsuranceDirect.com.au CEO Russell Cain said, “AMP reported one of the highest increases in profit – a 33% rise in statutory net profits, as at 20 August – and they’re not alone.”

The reported profits of some of the top life insurers appear below.

• AMP – posted a 12 per cent rise in first-half underlying profit to $570 million. Reported a 33 per cent rise in statutory net profits to $507 million from $382 million in the year-earlier period. As at 20 August, 2015.
• TAL – Financial results released by TAL’s Japanese parent, Dai-ichi Life, reflect that TAL’s premium income was up 21% to $2,234.9 million and underlying profit after tax rose 12% to $146.6 million. TAL’s embedded value grew by 32% to $2,584 million over the financial year. As at 19 May, 2015.
• ClearView – Posted a 4 per cent rise in underlying profits to $20.5 million for fiscal 2015. Although it reported a 10 per cent drop in reported net profit to $12.5 million due to amortisation of intangibles and integration costs associated with financial advice group Matrix’s merger into the company. As at 26 August 2015
• ANZ – Statutory profit after tax of $3.5 billion up 3%. Cash profit of $3.7 billion up 5%. Profit before provisions (PBP) up 4%. As at 5 May 2015

“Consumers should rightfully be asking how life insurers can say they are increasing life insurance premiums because their businesses are not sustainable, when their own evidence clearly shows they continue to make substantial profits,” Mr Cain said.

If sustainability is of such serious concern to life insurers, Mr Cain argues there is much more they could be doing to maintain, or further increase, profits than increasing premiums and pushing for commissions paid to financial advisers to be slashed.

“If life insurers do have a sustainability problem, then the onus should be on them to solve that problem,” he said. “Amongst other things, they could be innovating on product design and lobbying the government to ensure that things like stamp duty are removed from life insurance to make it more affordable,” he said.

LifeInsuranceDirect.com.au has produced a paper, ‘Why do your life insurance premiums keep going up?’ The paper is available here.

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Russell Cain

LifeInsuranceDirect.com.au is questioning whether the current spike in premiums on life insurance offered by insurers to consumers via financial advisers amounts to price gouging.

“We have received letters from a number of top insurers, some of them indicating premium price rises of up to 20 per cent,” said lifeinsurancedirect.com.au CEO, Russell Cain. “All of these insurers cite sustainability as the reason behind the price hike.”

But Mr Cain said the price increases, which will make it more expensive for consumers to buy life insurance via advisers, comes at a time when large insurers are campaigning to slash commissions paid to advisers.

“Logically, lower commissions should mean cheaper premiums for consumers, not more expensive ones,” Mr Cain said. “However indicators from insurers are that prices will continue to rise. This leads us to question whether life insurers are price-gouging.”

Lower commissions will mean distribution costs for insurers will dramatically reduce, while premium price rises mean their revenue will dramatically increase. “Together, all this does is improve the insurer’s bottom line,” Mr Cain said. “It’s certainly not in the best interests of consumers and neither does it help maintain the sustainability of the thousands of small financial advice businesses who provide the real human connection that clients and claimants so desperately need.”

Ultimately, Mr Cain said consumers will have reduced access to advice, less product choice and higher life insurance costs.

“We believe this is an attempt by some of the insurers, many of whom are owned by the major banks, to continue to push consumers into their own direct products,” he said.

In June, lifeinsurancedirect.com.au released data which revealed that direct life insurance policies are usually more expensive than those offered via financial advisers. “Consumers who buy direct policies may pay as much as 100% or more for life insurance products than those who take up policies offered via advisers,” Mr Cain said.

If commissions are reduced as proposed and prices keep rising as forecast, Mr Cain fears more advisers will exit the life insurance industry.

“Fewer advisers will translate to fewer life insurance options for consumers which can only increase Australia’s billion-dollar underinsurance problem,” he said. “Surely any changes as wide reaching as the ones proposed should help prices go down and make life insurance for the consumer – who isn’t paid a life insurance or bank executive’s salary – more affordable.”

To help consumers make better-informed choices about life insurance, lifeinsurancedirect.com.au created the Life Insurance Direct Quote Index that allows Australians to directly compare the cost of various types of life insurance policies.

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Russell Cain

A Bill recently introduced into the Queensland Parliament[1] has highlighted the need for Australia to commit to better protecting firefighters, according to LifeInsuranceDirect.com.au.

“While the Bill is a step in the right direction, we don’t believe it goes far enough in helping to protect firefighters and their families,” said LifeInsuranceDirect.com.au CEO, Russell Cain. “Firefighters put their lives on the line for us and they deserve better.”

The Bill, which would change the Workers Compensation Act, seeks to put in place a qualifying period a professional firefighter would have to work as a firefighter before becoming eligible for a workers compensation cancer claim. Volunteer firefighters would also need to attend 150 fire events in order to claim. The Queensland Liberal National Party has put forward an opposing Bill which would cover all firefighters for the 12 listed cancer conditions included in the Bill, regardless of years of service or number of fire events attended.

The Bill follows on the heels of a national Monash University study of over 230,000 firefighters, released in December last year[2], which found higher rates of some cancers in firefighters than in the general population.

“Australia has an obligation to ensure that our firefighters, who face greater health risks – sometimes for years after they stop working as firefighters, according to the Monash study – are adequately covered,” Mr Cain said.

If the Government is unable or unwilling to protect all firefighters via the proposed workers compensation scheme, Mr Cain argued it should subsidise trauma insurance policies to ensure firefighters past and present, and their families are financially protected.

Trauma insurance (sometimes called critical illness insurance) pays a lump sum if the person insured suffers a critical illness or injury. A trauma policy usually covers a host of conditions including a large range of cancers and severe burns.

LifeInsuranceDirect.com.au researched how much it costs to buy a stand-alone trauma insurance policy for a firefighter and how much it costs to buy a trauma policy with life insurance of $500,000 added on.

“Surprisingly our research found that in general trauma policies for firefighters are no more expensive and have no more exclusions than other policies held by people working in other occupations, despite the more obvious risks,” he said.

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[1] The Workers’ Compensation and Rehabilitation (Protecting Firefighters) Amendment Bill 2015

[2] http://www.coeh.monash.org/downloads/finalreport2014.pdf

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Russell Cain

Life insurers are allowing a misperception that advisers are being paid upfront commissions of up to 120% to continue, according to Life Insurance Direct.

“Their intent might be unclear but the effect is not,” says Life Insurance Direct CEO, Russell Cain. “This view of adviser remuneration is popularly accepted but, in our experience, it is fundamentally untrue.”

For the past few years, the Life Insurance Direct team has been tracking applications, policy transactions and commission payments received. The resulting data, entirely based on their experience, (approximately 3000 policies across 10 life insurers) provides an interesting case study. It reveals that the average annualized premium was around $1494. It also reveals the following interesting findings around what the life insurers actually paid in terms of commission:

• The “120%” paid by life insurers includes GST (10%) which is paid to the ATO and not the adviser
• Life insurers generally don’t pay commissions on frequency loadings (6-9%), policy fees ($5.61 – $8.82 / month) or stamp duty (0-10%) but these are included in the mythical “120%” cited by these companies. Excluding these elements means the average commission received for the policy implementation is closer to 89.83%

“We analysed the data breaking down what insurers actually paid,” Mr Cain says. “This data therefore gives an indication of what the proposed changes to adviser commissions are likely to mean in real terms and who will really benefit or suffer from the proposed changes.”

Mr Cain said this prompts questions around how much consumers should be paying for life insurance.

“When it comes to life insurance, it’s not necessarily a case of you get what you pay for,” he says. “Life Insurance Direct also conducted research into over 20 life insurance offers that shows that cheaper policies can often offer better value than more expensive policies. Generally speaking, life insurance policies sold direct to the public by big brands are usually more expensive and less comprehensive than those offered via financial advisers.”

To help consumers to make better-informed choices about insurance, Life Insurance Direct created the Life Insurance Direct Quote Index that allows Australians to directly compare the cost of various types of life insurance policies.

Users enter some key details (such as their gender and the level of life insurance cover required) and the Index models the data to show, and compare, the cost of the various options. Using an example of a 50-year-old male wanting $500,000 of life insurance, Life Insurance Direct found that annual premiums could vary by as much as $1,600 per year.

“In the past, life insurers have competed fiercely for business from financial advisers,” Mr Cain says. “This competition led to more comprehensive and better priced policies for consumers. The Quote Index highlights that the dynamic doesn’t operate in the direct insurance market.

“Reforms that ultimately reduce competition may have a significant negative impact on consumers,” Mr Cain says. “Unfortunately, the empirical data and intuitive tools available from lifeinsurancedirect.com.au, indicate that the interests of consumers may not be served at all well by the reforms.”

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Russell Cain
Life Insurance Direct Australia CEO

With the plethora of life insurance offers now being marketed to Australians, consumers may be confused about which policies are more affordable, according to Life Insurance Direct Australia (Life Insurance Direct) CEO, Russell Cain.

“We are seeing a lot of life insurance being advertised by big brands on television and online, but while it may be quick and easy to buy this way, it isn’t always the best value for money,” Mr Cain said.

To help consumers make more informed choices, Life Insurance Direct conducted first of its kind research into over 20 life insurance offers and created the Life Insurance Direct Quote Index (The Quote Index). The Quote Index allows Australians to directly compare the cost of the various types of life insurance policies available.

Consumers enter details such as their gender and the level of life insurance cover required. This data then produces a graph which shows pricing for each of the various options. Using an example of a 50-year-old male wanting $500,000 of life insurance, Life Insurance Direct found that annual premiums could vary by as much as $1,600 per year.

To use the Life Insurance Direct Quote Index and view a graph, visit http://www.lifeinsurancedirect.com.au/quote-index/

“Interestingly, what we discovered was that generally speaking, premiums on retail policies offered via financial advisers are often significantly cheaper than those offered direct to the public by big brand insurers or providers,” Mr Cain said.

In light of this research, Mr Cain urged consumers to shop around. “While price is not the only factor when considering life insurance, it is important, so it is critical to shop around, get educated about life insurance, speak to an expert and compare.”

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