The critical role of true advice when choosing risk insurance


PPS Mutual, CEO, Michael Pillemer
PPS Mutual, CEO, Michael Pillemer

With clinical precision to expose alarming evidence of misplaced trust, the Hayne Royal Commission into Banking and Financial Misconduct has revealed some of the financial sector’s worst failings of the past few years.

Quality advisers who have built robust client-first relationships and adhere to the ethical and moral standards of client best interest duty, face the daunting prospect of being ‘tarred with the same brush’ of the reputational downside of the sector’s misdeeds.

The quality end of the advice spectrum can be forgiven for despairing that positive stories – showing the personal financial and wellbeing benefits of sound financial advice – will become drowned.

Risk advisers in particular have been among some of the hardest hit by negative public perceptions and regulatory change in the sector in recent years. However, new data from Australia’s financial regulators has confirmed what many of these advisers have known to be anecdotally true for years: advised clients are better off when securing a successful claim outcome, compared with the unadvised.

This independent analysis of claims experience by the regulators gives a compelling reason for consumers to obtain quality advice when making a life insurance purchase decision.

The data, from the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA), shows that between 1 January and 30 June 2017, 90% of all life insurance claims were paid in the first instance, with 97% of death claims being paid, 84% for total and permanent disability claims (TPD) and 87% for trauma claims.

However, the data revealed very different outcomes depending on whether people purchased life insurance directly from an insurer or through an adviser. Where a person was advised, 98% of death claims were paid compared to 88% in the non-advised channel, and 86% of disability insurance (TPD) claims were paid, compared with 67% in the non-advised channel.

In terms of disability income insurance, also known as income protection insurance, those who were advised enjoyed 95% of their claims being paid, compared to 83% in the non-advised channel.

The results are not arbitrary or a one-off. APRA and ASIC say they are consistent with previous data released in November 2017 and with the results in ASIC’s ‘Report 498 Life insurance claims: An industry review’ in 2016.

It’s a similar story with the Financial Ombudsman Service’s annual review figures for the 2017 financial year, which reveal that 71% of consumer disputes relating to income stream risk products came from products which were sold directly through the insurer, while just 7% of disputes were from income stream products sold through a financial adviser.

Similarly, 68% of term life disputes for that year came through the direct sales channel, compared to 8% through the advised channel.

The statistics highlight an important aspect (at the claims end of the advice dynamic) of the real value that an adviser brings to the client experience. Knowledge of the insurance ecosystem can lead to a better outcome for the policyholder – particularly given the often-complex nature of risk insurance underwriting, where the true test of a good client experience may come 10 or 20 years down the track from the initial purchase.

This is a key reason why PPS Mutual does not offer direct sales. Our risk products are available only through accredited advisers, who have received formal product training to be best equipped to offer their clients the advice and guidance they need.

We believe that – particularly given the often more complex financial arrangements of our professional customers such as doctors, lawyers and engineers – clients require specialist financial advice when it comes to protecting their lives and their financial best interest.

For those advisers who may be disheartened by the current public turn of events, it’s important to remember that every day, positive stories still exist. There is no doubt that the advice industry will face further change, but within that there is an opportunity for insurers and advisers to work together to keep promoting the true positive impact that quality financial advice brings to the insurance process and ultimately delivering best interest outcomes to the client.

July 25, 2018
FS Advice