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Did Adding Insurance into Superannuation Increased Lapses in the non-Super Market?

Australian Risk Adviser has this interesting article on "churn" although we think that they mean "switching rates" generally. The items that stand out are the role of insurance in superannuation and the Zurich survey. 

Andy Marshall argues that with more than 40% of insurance premiums  in superannuation  when consumer budgets are stretched they must lapse or switch their non-super cover in order to meet budget objectives. 

On the subject of commissions Marshall argues: 

"Zurich’s own research has shown that unless we have commissions as a way of allowing clients to fund their financial advice, as many as 60 per cent would simply walk away and be in danger of chronic underinsurance."

Comments

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Jphale7

Thanks Russell, pertinent discussion point and one for the consumer, looks better to have it all bundled.

The reality is yes movement rates probably increased with the introduction of insurance into super, also too the perceived security of having both super savings and insurance covered. (Lived in Aussie for a while and did their quals too)

We've seen it here and I hope we don't ever repeat it. The bundling ignores a couple of fundamentals, super contributions are largely static and insurance premiums increase with age, leaving the punter up the creek when it comes retirement, because the insurance premiums ate it. The only people winning are the insurers, fund manager and advisers...

Yes there are ways to mitigate the problem, level premium products. That creates another issue in that the client is contributing more to insurance early on than they would have and this suppresses the long term investment value, which is also quite considerable at the end when you really need it.

IMHO bundling of increasing cost products with long term savings on a 'fixed' contribution rate is fraught. Advising to do this is financial malpractice. Keeping them separate maintains transparency and also give the client the flexibility to move when required.

A different fund manager but they have conditions that require the retention of the insurance, or the opposite, they have better product or terms with another insurance carrier and they like where their investment is.

Bundling takes away choice, this creates issues that directly impact on the perception of advisers and our industry. Give clients choice and control over their outcomes and we will see the attitude to our industry improve considerably.

Continue to 'protect' in the way we do by restricting product and provider options and bundling products that are detrimental to the customer, then don't be surprised that the current attitude to advisers continues.

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