Australian consultancy firm NMG Consulting was commissioned to review different aspects of the Australian life insurance industry. The report found that the decrease in adviser numbers, advisers shifting their attention to higher value customers along with more frequent reviews will mean that within the next three years, cover will be offered to less than 15% of the financially active population. The report noted that research backed the expectation that the industry shrinking would result in an increase in lapse rates as access to financial advice would reduce. It was stated that there is an increase in partial lapses and a sharp decrease in re-broking. The decrease in re-broking means affordability pressures on clients trying to keep their policies. The report suggests that prices are likely to increases and risks pools are likely to shrink as a result of reduced access to financial advice.
“The ongoing decline in total number of advisers, combined with the rational adviser shift to focus on fewer, higher value customers and more frequent reviews will reduce coverage to less than 15% of the financially active population within 3 years. The focus will be the top-tier 200 – 300 consumers with a three year or shorter review cycle. This implies a highly productive, sustainable and high quality ‘best advice’ model, that narrowly supports informed decisions by only the wealthiest and most financially sophisticated 10% - 15% of the population (with a resulting skew to older ages/more complex cases).
Research supports expectations that the contraction in the advice market will lead to an increase in lapse rates as customer access to advice reduces. Partial lapses and the rate of lapsing out of the system has increased. The sharp decline in re-broking is leading to increasing affordability pressure on customers who try to ‘hang on’ and then lapse out altogether, as opposed to an advised glide path to retirement with benefit and affordability aligned to need.
It should be noted that of the 25% of Australians aged 25 – 35 (predominantly middle income, with children or non-working spouses) who have less insurance than the community standard, almost one in five has not been able to access financial advice.
These trends suggest that future risks to the life insurance market are likely to relate to lack of access to the advice system and sustainability due to shrinking risk pools driving up prices and reinforcing the adverse selection spiral. Regulatory reforms need to both protect Australian consumers whilst making sure they can access an affordable advice system; while ensuring life insurance is sustainable over the longer term. Otherwise the pattern of under-insurance among young and middle-aged Australians, and the over-insurance of older Australians due to lack of access to advice, is likely to get worse at least over the next three years.”
In other news
Fidelity Life: Ross Fowler from Wealth Protection in Christchurch awarded the Gordon Watson trophy
Fidelity Life: Brett and Niki Stonham from Stonham and Co in Auckland awarded the Cary Veenhof Service award
Fidelity Life: Joey Gregory from Discovery Financial in Auckland awarded the Emerging Adviser of the Year award
Fidelity Life: Chris Aynsley from Aynsley and Associates from Canterbury awarded the Fidelity Life trophy