Risk advice is a cornerstone of Australians’ financial wellbeing – life insurance can provide invaluable protection for families, often as they’re experiencing the trauma of losing a loved one.
To date, our clients are mostly happy with our protection. AFCA data shows that life insurance is consistently the least complained-about financial product in the market.
| Product line | FY 2022 | FY 2021 |
| Credit | 37% | 40% |
| General insurance | 26% | 23% |
| Deposit taking | 15% | 12% |
| Super | 7% | 7% |
| Payment systems | 7% | 7% |
| Investments | 5% | 5% |
| Life insurance | 3% | 2% |
| Other | 0% | 0% |
Importantly, this data includes all complaints about life insurance products – the volume of these complaints explicitly related to financial advisers is significantly smaller again.
While this is undoubtedly something risk advisers can take immense pride in, there are still areas where we can improve. Perhaps the most pressing is balancing our client’s life insurance needs against their financial circumstances.
Historically, clients have been quite sensitive to insurance costs – with ASIC Report 413 – published nearly a decade ago – even noting that changes to premiums were a “significant driver” of switching behaviour.
This challenge continues today, and the increased cost of living adds to this sensitivity, potentially throwing up new affordability challenges.
Making life insurance more affordable is easier said than done – advisers can’t simply cut coverage levels, as that could leave clients underinsured and potentially breach our best interests obligations.
Balancing these competing forces requires a more nuanced and client-centric approach, beginning by identifying client needs to match them with the most suitable product solutions.
This starts with understanding a client’s risk tolerance.
The higher a client’s risk tolerance, the more comfortable they are being uninsured and the less value they place on covering themselves.
In this way, the relationship between risk and product within life insurance is almost the inverse of its relationship to investing.
The greater a client’s risk tolerance, the less demand they have for a product.
Risk profiling can be complex, as not all clients will understand probabilities and may struggle to make sense of possibilities. Instead, MLC Life Insurance has found that asking clients how comfortable they are with risk can help advisers get a deeper level of insight.
1. Identify clients’ points of vulnerability.
2. Quantify these to attach an appropriate dollar figure.
3. Assess available alternatives and self-insurance.
4. Assess clients’ attitude to risk and competing priorities.
5. Recommend appropriate mix and structure of products/self-insurance to meet risk profiles and needs.
Once an adviser understands their client’s risk tolerance, the next step is to assess their current level of insurance and pre-assessment eligibility.
This includes other insurance products like motor or home and contents. By considering the types of insurance your clients have taken out and the level of cover they’ve applied for, you get a better gauge of the value they place on reducing risk exposure.
Some questions you might consider asking include:
These questions will help you make sense of your clients’ needs and expectations about their insurance coverage.
After assessing their risk tolerance and examining their existing cover, it’s time to find a policy that aligns with their needs and circumstances – including their ability to fund premiums over the period they want to be covered for.
When assessing products, it’s vital to look at their rating and understand how rating scores are calculated to make sure high-scoring products are appropriate for your clients’ circumstances.
For example, a product may rate highly for cancer because the policy includes comprehensive definitions of cancer as it affects women. Despite this high rating, such a product is unlikely to offer the best protection for a male client.
Similarly, when looking at premiums, advisers need to consider the policy’s cost in the first year and cumulatively over the longer term.
In a vacuum, the ‘best product’ may not necessarily meet your best interest duties. The best policy for a specific client may not be the cheapest, the most comprehensive, or the highest rated. Instead, it will be the one most aligned with that client’s specific needs, with compensation linked to parts of the client’s risk profile for which they can’t self-insure.
Incorporating these considerations into your insurance process will help match clients with products that more accurately meet their needs. However, this is just a starting point.
We have developed a comprehensive guide to help advisers build stronger, more robust insurance philosophies to better serve their clients. To learn more, please download our Insurance philosophy considerations guide or contact your Business Development Manager.
Marshall works directly with advisers to craft strategic risk advice and deliver educational content to our partners. With over nine years of experience and a family background in financial advice practice, he's here to help you deliver effective and efficient outcomes for your clients.
Our guide on a page can help get you started
Download guide1. Australian Prudential Regulation Authority, Australian Securities and Iinvestments Commission, ‘Joint letter on premium increases in life insurance’, 14 December 2023, accessed 3 April 2024
2. Australian Financial Complaints Authority, ‘Data snapshot 2022’, 2023, accessed 3 April 2024
3. Australian Securities and Investments Commission, ‘REP 413 Review of retail life insurance advice’, 9 October 2014, accessed 3 April 2024