What's driving the growing underinsurance problem in Australia?
FOR ADVISER USE ONLY
A recent report from global consulting firm Deloitte has indicated that slow sales growth across the life insurance industry is leading to widespread ‘underinsurance’ in Australia, costing the public and the government billions of dollars each year.1
Deloitte’s report Mind the gap: How to provide the Australian community with the life insurance it needs, released in August, revealed that the total life insurance market in Australia (measured by annual gross premiums) shrunk by 0.6% per year between June 2017 and June 2022.1
The report said the shrinking market was due to pressure on all sales channels for life insurance in Australia, with the Protecting Your Super and Putting Members’ Interests First laws reducing the amount of cover in the group channel, increasing compliance burdens driving more advisers out of the industry in the retail channel, and the royal commission having pushed banks and many direct insurers out of the sector too.1
Growth in the Australian life insurance industry was also stagnant compared to other countries around the world, with the local industry seeing a 1.9% real decline in gross premiums in 2021, compared to 5.6% real growth across developed markets in Europe, Asia, North America and South Africa.1
Underinsurance in Australia
A previous report in 2020 indicated the Australian public was between 60-80% underinsured2, and the consulting firm said the percentage had “increased even further” since then and was “a growing problem which needs solving”.1 Current underinsurance levels were costing the government $1.5 billion a year in social security expenses, and the Australian public $25 billion a year in benefits that could have been paid by insurers if they had the proper cover in place.1
The results of the report are similar to a study from financial services advisory group NMG Consulting in 2022, which found high levels of underinsurance among middle-aged Australians in particular.3 More than one in five, or 21%, of all age groups over 35 were found to be underinsured, with a total of 3.4 million consumers underinsured for income protection and 1 million underinsured for death and TPD cover.3
The NMG report predicted if ‘simple advice’ were permitted around life insurance topics, negative growth in the advised life insurance channel could be reversed, with a 12% increase in the number of advised policies by 2027.3 The Financial Services Council, who commissioned the report, said proposals to simplify the advice framework in the Quality of Advice Review, which have largely been accepted by the government, were key to seeing life insurance industry growth improve.3
With many of the remaining advisers in the industry moving up the value chain to service high net worth clients, Deloitte suggested the key to insurers being able to grow business with middle-income customers would be developing “lower-cost, digitally enabled advice propositions”. But the Deloitte report said an industry-wide approach would also be needed to “truly meet community needs” when it came to having adequate life insurance.1
1 Mind the gap: How to provide the Australian community with the life insurance it needs. Deloitte, August 2023
2 New research shows a larger underinsurance gap. Rice Warner, 19 November 2020
3 Australia’s life underinsurance gap: Research Report. NMG Consulting, October 2022. Accessed from https://www.fsc.org.au/news/media-release/good-advice-would-see-a-million-more-australians-with-the-life-insurance-they-need
This article is made available by ClearView Life Assurance Limited ABN 12 000 021 581 (ClearView) and is for Adviser use only. Should financial product advice be included, this is intended to provide general information only. The information has been prepared without taking into account any particular person’s objectives, financial situation or needs. You should seek independent financial advice and read the relevant Product Disclosure Statement (PDS) before making any decision about a product. Before acting on such information, you should consider the appropriateness of the information having regard to your personal objectives, financial situation or needs. ClearView recommends that you obtain personal financial advice and read the relevant PDS before making any decision about a product. This information also does not in any way constitute tax, legal, financial or health advice and before relying on this information, you should seek independent expert advice. ClearView is not a health insurer or otherwise carrying on a health insurance business. This article should not be considered as health advice, and you should always obtain advice from a relevant health provider. This document is current as at 8 November 2023. ClearView can vary or withdraw this document at any time. This article should not be seen as a recommendation in relation to a provider and while ClearView have taken all care to ensure the information in this article is accurate and reliable, to the extent the law permits ClearView does not assume liability to any person for any error or omission in the article however caused.
You might also be interested in
17 Aug, 2023
Explainer: ASIC's adviser levy increase
We take a look at the regulator's latest estimated levy costs for financial advisers and how the industry has responded.Read more