Personal insurance is a necessity for anyone who needs to protect their home and family… contact me for more information. Originally posted on ProAdviser.com – Melinda
Are the regulators and politicians missing the point about the current Insurance debate? I really think they are.
The Insurance debate at the moment is focusing on the quality of Insurance Advice, which is a necessary part of providing a high level service to consumers, keeping us on our toes and keeping the profession robustly regulated. I have no problem with that, especially in the area of replacement of insurance.
However the multiple regulators and working groups, and advice groups and inquiries and advisers and politicians with their own agendas are focusing disproportionally on the minority of badly advised clients and how the advisers that provided the advice were paid. This is the bit that is missing the mark in my opinion. I think they are forgetting a couple of things.
I should point out that as a holistic adviser, I have a strong interest, knowledge and focus on personal insurance, however I do not consider myself an insurance “expert”. This area is extremely complex and I will pass on to an expert anything I don’t have confidence in dealing with. However, here is what I do know….
With all types of insurance you can’t look solely at individual’s perspectives. And how an individual person pays for their insurance advice and whether they should pay a different way in their circumstances is looking at it that way. Insurance is by its very nature a grouped thing.
We have to have a lot of people pay premiums, for the relatively few people who make a claim. And as long as the industry is well regulated by experts (which it is), has competition and enough participants to keep it growing and moving forward (which there currently are), keeping as many participants in there as possible is all there is to it really.
If you make a claim you have won financially because you are likely to get back far more than you paid (even if it is for your family). If you don’t make a claim, you have won because you didn’t have anything go drastically wrong. So insurance is really about winners and winners.
My brother-in-law was diagnosed with Cancer at age 52. At the age of 48 I wrote a Trauma policy for him. He paid premiums over 4 years of approximately $9,600. He claimed approximately $120,000. The $120,000 basically gave him options, relief, and care. Without this cover he would have been in a dire predicament. So did he lose? Of course, he got cancer. But he had a return of over 12 times his premiums when he needed it most. So he also won. He really didn’t care when it mattered how or when I had been paid for providing that policy.
So how did he get that 12+ times return on his premiums? The money didn’t come out of thin air. Someone else, many someone else’s, didn’t get seriously ill, but protected themselves just in case they did. And that is Insurance.
The only absolute losers are the ones who don’t actually get paid when they need to. These are either people who declined to consider insurance, or have inadequate or the wrong type of insurance, or didn’t read the fine print, or didn’t understand the differences between what they were paying for and what my brother-in-law had. And that is where any Insurance inquiry should be focusing.
The number of cases where an adviser has caused a client not to get paid when needed are really minimal in the scheme of things, and we have legal recourse already in place for if that happens (as we should). It shouldn’t happen, and of course there should be an inquiry if it does. But every profession has examples of when someone got something wrong. The number of times an adviser has caused and helped a client to get paid when really needed are absolutely astronomical, and has saved the Government and the country a lot of money. Why is there no inquiry about that?
And if we choose to focus on how much and how an adviser gets paid, when everything is disclosed, double-disclosed, and the client is aware of it when they CHOOSE to get insurance advice, does that make sense? Do we expect the advisers to work for free? Do we expect a low-income client to only get less of the work, research, attention and care that a high income client gets? Because they can’t pay a fee for the advice upfront at the same level? That might trigger an inquiry.
If I was in charge, I would be focusing on disclosure of policy definitions and making sure the public knew they needed insurance, and they needed to know the terms & conditions of their insurance, so that they actually will get paid if it is their turn to be unlucky.
With the increase of direct insurance underwritten at claim, policies that are held in super funds that are automatically accepted and have rubbish terms and conditions, and the multitude of policies that are happy to collect a premium but no-one is there at claim time unless to hold-up or find a reason not to pay – that is an inquiry waiting to happen.
There are also policies that are cancellable if your health changes or you make a claim, and policies that are cancelled if you change employers or go on extended leave. However these ones are not generally the ones the financial adviser is recommending.
The advisers who are being criticised for being paid to do their jobs of protecting individuals, in policies that collect money from informed consumers with high quality terms and conditions that are matched to the client, or at the very least way better than what they had (or way better than having nothing), should be left to let market forces and full disclosure surround how they get paid.
Time to change the focus to the quality of general advice and automatic cover, and all of the products and providers who are selling insurance policies that are unlikely to ever pay. Paying premiums for insurance that won’t pay? That is when you lose the most.