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The Opportunity in Life Insurance

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It’s no secret that advisers have been hit with a lot over the past few years – from FOFA to LIF to the Royal Commission to the new education standards.

On top of this, insurance products such as Income Protection have undergone a significant change, and products across the board are evolving and becoming more complex. Understandably, many advisers have thrown in the towel.

But as Albert Einstein said, “in the middle of difficulty lies opportunity”. There’s still plenty of fight left in insurance advice – so where are the opportunities, and how can you take advantage of them?

The Current State of Insurance Advice

It’s a fact that adviser numbers are shrinking. In late 2021 there were 18,965 financial advisers in Australia.¹ In August 2022 this had decreased to 16,400 advisers² and this is predicted to decrease to 13,000 by the end of 2023.³

As of April 2022, there are only 1,200 risk specialist advisers.³

There also continues to be a chronic underinsurance gap for many Australians, especially of working age. A 2020 Rice Warner report indicates that the average “young parents, both aged 30” need $561,000 of Life insurance and $874,000 of TPD cover.⁴ Many Australians in that cohort do not hold anywhere near that amount of cover. The underinsurance gap has further increased in light of changes to superannuation, especially around Protect Your Super and Putting Members’ Interest First.

However, concerns around Covid-19 and tighter economic times have resulted in a sharp decline in retail insurance lapses, with lapses falling by 3.0% for lump sum benefits and 1.6% for Income Protection benefits to June 2021, according to KPMG.⁵

The Opportunities

  1. Advisers Leaving
  2. Increasing Complexity
  3. Consumer Markets

1. Advisers Leaving

With so many advisers continuing to exit the industry, and only 1200 risk specialists remaining, there’s never been a better time to take advantage of the demand for risk advice. 2020 research found that demand for advice has doubled in the last 5 years.⁶

Holistic wealth advisers could consider super-charging their insurance knowledge, filling any potential insurance gaps in their business with the right people, or setting up an agreement for clients to work with an insurance specialist.

Existing risk specialists could consider buying an existing adviser’s book of business, improving and innovating risk advice processes and increasing client awareness and engagement.

2. Increasing Complexity

Retail life and disability products have become increasingly complex with many options, ownership structures and potential tax and other legislative impacts. Insurance through super funds is also more complex, and direct insurance products can be tricky for consumers to navigate.

Once a consumer starts looking into their options, many realise how complex it is – not just from a product point of view, but also from a ‘how-to’ point of view. Even a cursory search of popular Australian-focussed finance forums such as Whirlpool and Reddit indicate that someone is asking a question about life and/or disability insurance every 2-3 days.

3. Insurance as an Entry Point

Life and disability insurance is a common entry point into financial advice. Most conceptual models of financial planning have protection as a foundational element.

Putting insurance in place early is also intuitively sensible, as the ability to earn an income is central to the ability to build wealth. If the ability to earn an income is not protected, then all the best-laid plans to build wealth can come unstuck in an instant. Approximately 20% of all mortgage foreclosures in Australia were due to a member of the household suffering an illness or accident.⁷

Starting a client with insurance, and growing that client’s value over time, is a no-brainer.

With so many advisers leaving, increased complexity and insurance being a natural entry point to a financial advice relationship, there is a significant opportunity to help more Australians get the right protection, and grow your revenue.

Strategies for Growth

1. Learn as Much as You Can About Insurance

Whether you’re a risk specialist, a holistic adviser or new to advice, there’s never been a better time to learn more about insurance. Not just because of the opportunities in the current market, but because of the many ways you can access learning.

Life and Disability insurance is demanding, both technically and across relationships with clients and key business partners such as underwriters. Some areas worth focussing on include:

  • Field underwriting
  • The differing underwriting philosophies of insurers
  • The role of reinsurers
  • Variations in product offerings
  • Negotiations and difficult conversations (especially around underwriting outcomes with both underwriters and clients)
  • Understanding common medical conditions and how these can impact underwriting outcomes
  • The reality of the claims process

Zurich’s Zone Education portal has a range of resources across key ‘zones’ including soft skills, business processes and technical insurance skills that address many of the above areas. Many product providers including Zurich offer training across a range of risk-focused topics.

It’s also worth joining online risk adviser forums, connecting with other risk advisers, joining industry bodies, seeking an insurance mentor, keeping up-to-date with industry news and reading Australian-focused insurance books.

2. Increasing Your Clients’ Financial Literacy

Research conducted by the University of Western Australia in 2020 showed that 63% of men and 48% of women in Australia demonstrate an understanding of at least three basic financial literacy concepts and that just over half of all adult Australians (55%) can be considered financially literate.⁸

There is a tremendous opportunity available to develop educational resources for your clients and potential clients, with insurance as a focus, given that insurance is the logical place to start a financial advice relationship.

3. Reaching Your Clients

If insurance is the logical starting point for financial advice, and there’s an opportunity to develop financial literacy with insurance as a key topic area – how can you reach existing and potential clients?

The good news is that you don’t need to spend a fortune on marketing. The first step is to know your clients and, if you want to attract new clients to your business, have a detailed understanding of that target audience.

Get to know your clients by analysing the data from your client system. Even just knowing the age ranges, gender and location of your clients can help you target insurance-based education.

There are plenty of channels and strategies to reach existing and potential clients, but the key is to educate and add value. For example:

  • Regular newsletters with targeted content
  • Targeted email campaigns
  • Social media presence and advertising, where you could give away a free e-book for example
  • Producing educational blog and video content
  • Partnering with other firms to run events where you speak and educate people
  • Be innovative in your systems and processes, which often results in existing clients sharing their experiences with their network

Whilst there is a lot of change and upheaval in insurance advice, there has never been a greater time to assess the role insurance advice plays, or could play, in your tool-kit, and just how powerful it can be for both your clients and yourself.

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This article was written based on the recently released ‘Life Confidence- Adviser insights to strengthen your risk advice proposition’ paper by XY Adviser and Zurich. A copy of this paper can be found here.

 

 

Reference:
¹https://www.ifa.com.au/news/30131-adviser-numbers-dip-below-19-000
²https://www.moneymanagement.com.au/news/financial-planning/advice-industry-records-slight-decline
³https://www.ifa.com.au/news/31082-over-2-000-more-advisers-predicted-to-exit-industry-in-2022
https://www.ricewarner.com/new-research-shows-a-larger-underinsurance-gap/
https://home.kpmg/au/en/home/insights/2021/10/life-insurance-insights.html
https://www.professionalplanner.com.au/2020/09/advice-demand-doubles-in-5-years/
₇‘Risk Nexus, Understanding income protection gaps: awareness, behaviour, choices’, Zurich Insurance and Smith School of Enterprise and Environment, Oxford University, 2016
Financial Literacy in Australia: Insights from HILDA Data by Prof. Alison Preston

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DISCLAIMER: The XY Adviser website and all content contained on the website is limited to general information. It does not constitute legal, financial or other professional advice. XY Adviser does not hold an AFS licence and does not provide any financial services. Nothing on this website should be interpreted as financial advice. Before making any investment decision, XY Adviser recommends obtaining financial advice from a qualified financial adviser.