Changing the narrative: Insurance and advice as an asset

By: MATHEW PILCHER  | MONDAY, 29 MAR 2021

If we needed reminding that life can be filled with unexpected bumps and in some cases more serious events, the global pandemic has certainly brought our collective vulnerabilities into focus. The past 12 months have offered many lessons: one is that we should try our best to be prepared for the unexpected.

Financial advice has been subjected to unrelenting scrutiny of late, perhaps distracting from the core value that advisers deliver to their clients. This article offers an alternative view of looking at the value an adviser brings to clients as they are guided through the all-important process of insuring against unexpected life events.

In fact, we begin by asking the question: why not consider advised insurance cover an asset, rather than a necessary expense?

After all, an asset is anything that can be utilised to produce value. For many professional clients, the asset of most value is their ability to earn an income. Whilst many people would regard the value of the equity of their house as their main asset, the value of their future earnings would be considerably more than this. Beginning with basic maths, if you amortised the earnings of most young graduate doctors, accountants, or lawyers today over the course of their working lives, it would amount to several million, if not tens of millions of dollars. This is without considering the personal sacrifices and investment they have made in their education and training to qualify as a professional in their specific field of expertise.

Therefore, using Income Protection and TPD insurances to protect this income stream – should they be unable to work for a period (or even ever again) – should be recommended as a value add to the client.

Likewise, trauma insurance should be considered an asset to many professionals as, through a lump sum, it helps to ease the financial burden for the insured person and their family by providing peace of mind that financial support is available when most needed. It allows the insured to focus on recovery and not have to worry about how to fund medical treatment or lifestyle adjustments.

Understandably, sickness and life-threatening disease is not something that we like to think about, nor is the case of a person dying. In the awful event of death without insurance, remaining family members may have to sell their home to repay outstanding mortgage or other debt. Life insurance offers the peace of mind that in the event of the unimaginable, loved ones left behind will not also be burdened with additional financial stress.

It is also worth mentioning the value of business insurance i.e., buy/sell or ‘key man’ insurance particularly for professional business partnerships in providing certainty and to retain the value of the business asset.

Recent research, compiled by CoreData on behalf of CPA Australia, found that respondents reported benefits to their physical and mental health, family and social life, relationships, and work satisfaction from receiving professional advice. When it comes to insurance, we believe that there are three key ways a financial adviser can increase value, making insurance a measurable asset to the life insured.

Choosing appropriate cover

A professional financial adviser can advise clients on the appropriate amount of cover, specific to an individual’s needs. Most people, even highly educated professionals, have low awareness concerning the correct amount of insurance that they need.

Like all consumer products and services, there is a range of quality available within life insurance offerings. Often the easiest insurance to obtain is through Direct or Group schemes, however they often have very basic covers and are designed for the mass market rather than for the needs of select groups. They may have tight definitions when it comes to claim time, cover a reduced number of conditions, or do not have extra features that may be beneficial to specific circumstances.

Adding to the confusion is knowing how to measure value for money. The insurance industry is experiencing significant volatility in terms of pricing and in the second half of this year we are expecting to have a whole new generation of income protection products that are likely to be more diverse than they are currently. Therefore, it is now more important than ever for professionals to have advisers guiding them through the insurance process, making sure they have the appropriate cover that is priced appropriately and specific to their needs.

Ongoing review of policies

The financial adviser is the clients expert guide throughout the entire insurance journey.

A recent ASIC report on consumer engagement in insurance in super revealed that several fund members who directly engaged with their insurance found the process challenging and were not always able to achieve what they had set out to do. This highlights that the value of a financial adviser goes way beyond choosing the correct level of insurance in the first instance.

In the underwriting process not only will the adviser arrange much of the paperwork, but they will also have the expertise to challenge insurers to get the best outcome for their clients. The adviser will make sure that the insurance is reviewed on an ongoing basis to reflect a client’s current circumstances so that the insurance asset remains appropriate.

Throughout the past year, many clients have found the support of financial advisers invaluable in guiding them through what to do with their insurance cover when dealing with the financial and emotional consequences of business not being able to operate due to COVID-19.

Claim time

This is when the value of an adviser really shines. If a client has suffered a health event, it can be hugely traumatic for both them and their family, and can have potential impacts on their mental health. Insurance claims can add to this stress, so to have an expert, who understands the major trauma that has happened in your life, to guide you through the process and ensure you are being treated fairly is extremely valuable. This also helps explain why the proportion of claims paid for individual covers are far higher for claimants with an adviser than for non-advised claims (source – APRA Life Insurance Claims and Disputes Statistics).

Although people tend to focus on cost at the outset or along the way, the value of insurance cover will be determined at the time when the client needs it the most (i.e. at claim time). This is the moment of reckoning because the outcome can be binary depending on the quality of the advice the client has received and the quality of the cover that has been put in place.

It then comes as no surprise that The True Value of Advice report, with research conducted by IOOF and CoreData, has found the majority (90%) of advised clients said that accessing financial advice has left them in a better position financially.

At PPS Mutual, we have always believed that professionals require specialist financial advice when it comes to protecting their lives and their financial best interests. Our mission is to continue promoting the true positive impact that quality financial advice brings to the insurance process and ultimately delivering best interest outcomes to the client.