Life insurance is viewed by many Australians as a low priority, with many being disengaged from the process altogether, However, the insurance process is becoming simpler and easier, with enhancements to the application and underwriting stages helping to reduce client disengagement.
The underinsurance issue in Australia is well-understood by financial advisers. There are different ways that advisers can address their clients’ financial protection gap, with one solution being life insurance.
A key challenge for advisers is that life insurance is viewed by many Australians as a low priority, with many clients believing that injury, sickness or premature death will not happen to them.
Financial advisers must therefore demonstrate the need for clients to obtain appropriate cover, and explain the solutions on offer. Many life insurers, for their part, are working hard to make the entire insurance process simpler and easier, including enhancements to the application and underwriting stages.
Has consumer behaviour changed?
With increased access to information online and through digital channels, consumer behaviour is changing, impacting many industries. In life insurance, this has led to the growth of the direct life insurance sector, where some consumers prefer to self-educate and proactively purchase life insurance without obtaining financial advice.
Retail insurance, however, is a slightly different proposition to direct life insurance. There may be increased consumer awareness of the need for life insurance and the financial protection that it provides, however, consumers will not generally know how much cover they need, the types of policies they require, or how they should structure their insurance.
In addition, default cover within group insurance arrangements inside superannuation may result in people believing they are sufficiently covered when, in fact, they may not be.
It’s important for life insurers to help advisers and their clients, by keeping up with what leading product manufacturers in other industries are doing and offering solutions, to make the process of obtaining cover easier.
While life insurers should be partnering with advisers throughout the entire life insurance lifecycle, one of the most important times in which proactive participation is required is during the lead-up to, and at the time of policy commencement – as any delay or miscommunication may lead to disengagement by the client.
If this occurs, there is a much higher risk that life insurance will be deprioritised, and if so, clients will continue to be financially exposed.
There are also other times in which the adviser plays a key role, such as when a client needs to claim on a policy. However, this article focuses solely on what the adviser can do to ensure that policies can be obtained with as much ease as possible.
Delays and miscommunication prior to policy commencement can be categorised into two categories: first, the application process; and second, the underwriting assessment.
Below we will explore how enhancements in each of these areas can reduce client disengagement.
Online quote and application capability
It’s essential for insurers to be able to provide a quote and accept applications online. Online processing allows advisers, as well as their staff, such as Associate Financial Planners or paraplanners, to access the quote or application from their own device – creating efficiencies within an adviser’s business.
Integration with research software
Many advisers will use research software as an efficient means to determine a suitable life insurance recommendation. In doing so, one factor that is considered is the premium. If research software is integrated with the insurer’s quoting system, a quote can be validated online instantly. This provides a considerable time saving, as the same client details do not need to be re-entered into the insurer’s quote software.
Further, any information entered into research software will auto-fill the relevant fields in the insurer’s quote and application software, allowing straight-through processing.
There should be flexibility in the way that the application process can be completed, to cater for different client needs. For those who would prefer more privacy, a tele-interview service allows the personal statement to be completed over the phone, at a time suitable to the client. This service is conducted by skilled tele-interviewers and may deliver a wide range of benefits, including:
an enhanced customer experience;
better disclosure providing greater certainty at claim; and
faster underwriting decisions and fewer requests for additional information.
The underwriting assessment can sometimes be quite involved, and there are opportunities to improve the adviser and client experience at this stage of the insurance lifecycle. In working towards making the underwriting assessment process easier, insurers have identified common pain points, such as:
non-engagement with key underwriting staff on complex cases;
advisers being unaware of the likely outcome;
onerous medical and financial requirements;
non-standard terms being offered, and applicable across all policies for a single client; and
underwriters being unable to offer cover.
An experienced and knowledgeable underwriter can help with the above issues by collaborating with, and providing guidance to advisers. They can also provide clearer guidance of the likely underwriting result for individual clients, which may lead to a superior client outcome.
Determination of the likely underwriting outcome
A pre-assessment will help advisers identify the probable underwriting outcome, or any additional requirements that may be necessary, for those cases where a client discloses medical, financial, occupational, pursuits/pastimes or travel/residency risks that may affect the insurance risk assessment.
Identifying potential triggers for non-standard policy terms with clients upfront can help position a likely underwriting assessment and gain acceptance of possible non-standard terms, in the event they are needed.
Advisers may be able to prompt clients to tell them about any concerns that might trigger non-standard terms, by asking about:
any current, long-term or recurrent medical condition, including signs or symptoms;
any current or long-term medications or other treatment;
any tests or investigations that required follow-up;
any specialist referrals;
any therapy received, such as by a chiropractor, physiotherapist or psychologist;
time off work;
any planned investigations or consultations;
any financial concerns, such as fluctuating income levels and history of bankruptcy/administration;
any high-risk occupations or occupational duties;
any high-risk pursuits and pastimes; and
any travel or residency in high-risk countries, as documented in the Department of Foreign Affairs and Trade’s guidelines.
Where a pre-assessment has been obtained, this can be included in the Statement of Advice. This means that non-standard terms do not need to be offered, which can be another point at which the client could disconnect from the process.
In addition to pre-assessment, some insurers offer tools that can help determine whether loadings or exclusions will apply. For example, body mass index (BMI) calculators.
Collaboration between advisers and underwriters
If advisers work in partnership with their underwriter, they can access tailored guidance that suits their business. In addition, when underwriters are state-based, this enables them to regularly speak to key staff on a range of topics, face-to-face.
There are many ways in which an underwriter can help pave the way for a smooth underwriting experience. Some examples are discussed below:
If advisers are new to the pre-assessment process, an underwriter can highlight the types of questions that can be asked of clients, to uncover potential risks.
Underwriting discretion can be applied in certain circumstances where the sum of all parts does not reflect the overall underwriting risk. For example, when applying loadings for overall cardiovascular risk, such as BMI, blood pressure and cholesterol levels, it may be appropriate to absorb some of the suggested loadings for each of the conditions when the overall loading is applied, due to the overlap in the medical conditions and risk.
Where the insurer has a strong relationship with their reinsurer, this can result in negotiation of terms in some situations that are more favourable to the client.
Options should be considered to provide some level of cover for the client, rather than complete denial of cover. For example, a longer waiting period, or shorter benefit period for income protection cover (IP); or a different IP or TPD cover type, such as general cover, rather than occupation-based cover.
Limited term contracts could also be considered, which provide cover for a finite period (less than the period up to the standard expiry age of a traditional policy). In many cases, cover may be otherwise unavailable.
Medical and financial requirements can be streamlined in many instances. This is discussed further below.
Medical underwriting requirements
An underwriter can work with an adviser to identify any issues with policy completion and provide guidance/tools to help with this. For example, where there is a high rate of non-completion due to blood test requirements, the underwriter can provide options, such as retesting at a later date.
Further, discretion can be applied to the type of medical information requested from the client’s treating doctor, if required.
For instance, an insurer might request medical information only when it relates to the condition that a client suffers from, rather than a blanket request for an Extended Medical Attendants Report for all applications, which is a common course of action taken by insurers. Determining the medical information that is required will often come down to the conversation between the adviser and the underwriter, as well as the client’s medical history.
Financial underwriting requirements
Progressive insurers will limit financial evidence requirements to when the client applies for higher levels of cover, and if any additional information is required, this can be obtained through a series of questions.
An insurer who has adopted this simplified process is able to do so because in most cases, it is unnecessary to acquire financial evidence. Financial information is already provided by the client in the application process, and receiving evidence to support this does not affect the level of cover offered. The majority of applicants supply the correct information, and therefore, this new underwriting methodology caters for the greater proportion of clients. The traditional underwriting approach caters for the very rare case where a client may disclose incorrect financial information.
Generally, the level of personal lump sum cover is based on a multiple of income (plus any loan balances), where the multiple is based on the client’s age bracket. It’s important to recognise which insurers have generous multiples, as this influences the overall level of cover offered. With regard to income itself, an assessment can be made on what would be reasonable, based on the client’s occupation. In the case that the salary stated in the application is outside of expectations, this can be resolved through a conversation with the adviser or their client.
Applications for IP cover can also benefit from a more fluid process. For example, it is common for financials to be required, to underwrite agreed-value contracts. However, an insurer might be able to offer cover without financial evidence, when cover falls under specific thresholds, allowing many applications to be fast-tracked.
The same principle of simplification can be applied to non-occupation based cover; that is, it is unnecessary to obtain financial evidence from clients applying for home duties IP and total and permanent disability (TPD) policies. While an individual who is engaged in domestic duties does not typically earn an income, there is an assumed level of income cover to allow a professional to perform those tasks, should the homemaker become disabled. Therefore, there is no need for the client to provide this information. There may also be cases where the client is about to return to work. If this is the case, normal earned income can be used as the basis for determining a higher level of cover offered.
In addition, debt protection under home duties cover may be offered. While the homemaker does not contribute to debt repayments, it is likely they will be liable for the loan.
If the client needs to claim on their policy, financial evidence to support the benefit will generally not need to be supplied by the client, unless it is a claim on a policy type where this is normally required.
Hypothetical example – Lump sum cover
Ava, aged 36, is currently on maternity leave. In three months, she will return to her role as a paediatrician on a part-time basis (21 hours a week), earning $100,000 per annum. Ava is applying for $3.55 million death and $2.9 million TPD cover, which allows for income replacement and $800,000 debt protection.
As Ava will be returning to work soon, the insurer can calculate income cover based on her age-based multiple of 30, multiplied by $100,000. The maximum amount of death and TPD cover that Ava could be offered, without financial underwriting, is $3 million plus $800,000; which is above what she has applied for. Therefore, Ava is offered $3.55 million death and $2.9 million TPD cover, without the need for financial evidence.
Hypothetical example – Income protection cover
Lucas, aged 40, is a solicitor who operates as a sole trader earning $350,000 per annum. In 2016, he earned an income of $320,000, and in 2015, he earned $270,000. Therefore, his financial adviser recommends that he apply for an agreed-value income protection policy that provides a monthly benefit of $21,250. As this level of monthly benefit was under the insurer’s underwriting threshold, this amount of cover could be offered to Lucas, without the provision of financial statements, and without the need for financial underwriting.
If the insurer had to financially underwrite the case formally, the assessment for the benefit level would be based on the 2016 financial statements (showing income of $320,000), as the 2017 statements have not yet been finalised. In this scenario, the maximum benefit that could be offered to Lucas would only be $20,000 per month.
The outcome of an easier and more accessible underwriting process is a superior client experience. In addition, without the need for financial evidence, completion time is faster. This has obvious benefits for insurers, advisers and their clients.
Insurers are striving to make the application process for retail life insurance as easy and efficient as possible – to save time and reduce complexity for clients and advisers.
The underwriting process is an area of focus because there are opportunities for improvement, especially in cases where the standard approach will not always provide the best outcome for the client. A highly experienced underwriter who can treat each client individually, can help provide useful solutions, especially for clients with more complex circumstances.
Cover will be based on home duties definitions.
Examples of policies that would have this requirement are: an indemnity IP policy; an agreed-value IP policy where the monthly benefit is above defined pre-disability income; or a superannuation IP policy, where the trustee needs to determine the amount that can be released under superannuation law.
Online quote and application capability allows advisers to:
a. Complete the process from multiple devices.
b. Share quotes and applications with other staff.
c. Access updates without having to install new software.
d. All of the above.
Integration with research software creates time efficiencies by:
a. Allowing immediate quote validation.
b. Avoiding duplication of date entry in the insurer’s separate quote software.
c. Auto-filling the insurer’s quote software to allow straight-through processing.
d. All of the above.
The benefits of a tele-interview are:
a. The personal statement can be completed over the phone with the tele-interviewer, at a time suitable to the client.
b. The client’s personal medical history does not need to be disclosed to the adviser.
c. Both a and b.
d. Only short-form underwriting is required.
Simplification of the financial underwriting process is achievable by an insurer because:
a. Estimates can be made about reasonable levels of income, of which the level of cover offered is based, together with debt levels.
b. Financial statements can be obtained by the insurer through other means.
c. The level of cover offered is based on the client’s age.
d. None of the above.
Insurers can help advisers with determining the likely underwriting outcome by:
a. Explaining the pre-assessment process.
b. Prompting client questioning that will aid in the pre-assessment process.
c. Providing tools that provide guidance on likely loadings or exclusions.
d. All of the above.
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