A worrying number of Australians are underinsured

Tackling underinsurance is a vital issue for the Australian insurance sector. Firms such as BT Financial Group are keen to address this as soon as possible

South Barangaroo redevelopment project
The South Barangaroo redevelopment project, home of BT Financial Group's headquarters 

The importance of life insurance is not to be underestimated, and yet a worrying proportion of the Australian public remains uninsured. With this in mind, World Finance spoke to Phil Hay, Head of Life Insurance at BT Financial Group, about what the insurance sector can do to raise awareness of this vital asset both in Australia and globally.

How has Australia’s life insurance sector changed in recent years?
Increasingly, it’s become apparent that the life insurance industry needs to be better at promoting the value of life insurance, so that we can address the issue of underinsurance in Australia. While we have some way to go, I believe the industry is improving. The drivers for this trend are threefold.

The leading insurers are proactively being more transparent about how they operate, particularly when it comes to managing claims. In insurance, claim time is of course the most crucial part of the service experience – it’s when we make good on the promise that we will be there for the customer in their time of need. Simultaneously, the evolving regulatory framework is encouraging the industry to develop standards that can ultimately help customers understand the benefits of having life insurance. Finally, consumers want value; value-for-money not only attracts customers, but allows us to retain them for the long term.

To this end, over the past six years, BT has invited an independent reviewer to assess how well we deliver on the claimant experience. The review covers how we process, accept and decline claims. We’re very pleased to have consistently achieved an A* rating, with a star for innovations we have developed to enable us to service our customers better. Opening our doors and sharing the results publicly have contributed to our reputation as a trusted insurer.

There is an enormous opportunity to provide further education and guidance to consumers on life insurance

There are now various studies that benchmark competitors’ performance on service quality. Furthermore, the Association of Financial Advisors has launched the Consumer Choice Awards, which recognise the best insurers as rated by advised policyholders and claimants. Within the industry, Investment Trends conducts a survey among advisors, and BT has achieved the highest net promoter score and satisfaction out of all insurers.

Importantly, the industry is working with governments on putting in place industry standards that benefit consumers and also make the cost and value of life insurance – especially advised insurance – easier to understand. All of these initiatives will, I hope, help to improve consumers’ perception on the value of insurance.

But the insurance industry must continue to face some challenges?
We still have some way to go to really change consumers’ attitudes and chip away at the key challenge of addressing underinsurance.

To understand consumer sentiment better, BT conducts an annual study on Australians’ financial wellbeing, called the Australian Financial Health Index. Overwhelmingly, over the past three years, the survey results have shown there is an enormous opportunity to provide further education and guidance to consumers on life insurance. Too many consumers are confused or feel indifferent about life insurance: just 45 percent say they “completely understand the benefits of life insurance” and 18 percent say they are “under-insured, but happy that way”.

Furthermore, Australians still rate their home as the most important item/asset to protect above any form of personal insurance. As part of the survey, we asked people to rank their home and other possessions against life insurance and for the past three years the family home has come out on top.

As home ownership increases, it becomes the priority for protection, above life, illness and income insurance. What Australians must bear in mind is what would happen should the unexpected occur, and they can’t meet their mortgage repayments and other debts.

Considering the relatively low uptake of life insurance in Australia, how can the industry reverse this trend?
Transparency through existing independent surveys, such as on claims management, encourages strong competition among the industry participants in areas that are meaningful to customers. Statistics from these initiatives also help to promote that a lot of insurers are doing a good job.

To achieve significant change, as an industry we can work harder and collaborate to present a much more convincing argument for the value of life insurance. We are doing this through industry bodies such as the Financial Services Council (FSC). For example, through the FSC the industry is developing a code of conduct that will set standards across insurers, which can improve service delivery and consumer perception of life insurance.

Changing perceptions requires insurance companies to be more proactive and also to deliver outstanding customer service so that customers are willing to share their experiences. Last year, BT assisted over 3,330 customers and paid more than $275m in life insurance claims. Particularly through our claims team, we hear a lot of positive feedback from customers on their claims experience. Some customers offer to share their life-changing stories, and we are now documenting these.

We’re finding that other customers appreciate learning about the value of life insurance in this way. Narratives resonate with consumers. Real-life stories put a human face on insurance, an intangible product. One day, people will be talking about insurance at barbecues in the same way they do about real estate. If positive experiences with life insurance become a topic of conversation at gatherings with family and friends, then we will know that general perceptions about life insurance are changing. Customers are likely to listen to family and friends when it comes to making financial decisions, and insurance is no different.

How are insurers improving their services, particularly claims management?
The focus on claims management can be an opportunity. At BT, we have worked hard to ensure that we have a solid track record of providing great customer service at claim time.

Our focus on innovation in this space has resulted in the ‘health outcome measure’. Our claims management team utilises the health outcome measure so they can understand the best way to assist customers who are on the path to recovery and re-entry into the workforce.

The measure – utilised both at the commencement of the health support programme and at the end – assesses the claimant on a number of health aspects including cognition, self-care, participation, mobility and capacity to undertake everyday activities.

We introduced this initiative in July 2015, and the initial results are promising, showing that BT’s tailored health support programmes have greatly improved customers’ health and wellbeing. Among the customers who have received health support and had their cases finalised, 84 percent recorded an improvement in overall health, with 75 percent successfully returning to work.

Consumers are sceptical about the insurance and advice industries. Insurers have to be more transparent when it comes to claims management and better at promoting the great work that is done in this area to help our customers.

How can the industry better promote the value that advisors give to customers when helping them obtain life insurance?
It is a well known fact within our industry that Australians who seek personal financial advice when taking up life insurance have more appropriate levels of insurance cover, a better quality policy and the benefit of thorough medical underwriting.

Among consumers, however, there is some perception that direct insurance is somehow better or cheaper. It’s easy to make the error of equating it to buying direct from the manufacturer for other products. You might save money buying consumer goods, such as clothes or food, by not paying the retail price, but with insurance it’s different.

Advisors can help customers save money in the long run by balancing the long-term and short-term needs of the client with the cost of insurance. They can tailor strategies to make insurance affordable in the long-term for the customer, instead of using a ‘one size fits all’ approach. For example, advisors can achieve cost savings for customers by minimising overlaps between different types of cover, as well as reducing cover over time, as clients make repayments and reduce debts. This is the message that needs to be relayed to customers to change this perception.

How is innovation helping the insurance industry in Australia evolve?
With the recent focus on service and claims management, innovation in insurance has gone beyond mere product development – for example, as we have done with the health outcome measure. Innovation needs to be across the value chain, with a holistic approach to providing life insurance solutions that will create evolution in the right direction.

Sometimes the best solutions are quite simple, such as using the available technology to deliver the best service. One real-life example has been where we have used an app similar to Skype to assist one of our customers – a rural cattle farmer who was able to benefit from an exercise physiotherapy session delivered remotely and electronically.

What does the future look like for Australia’s life insurance sector?
There are opportunities to make insurance solutions simpler and more efficient by improving processes in the future – not just by enhancing claims management, but also by improving underwriting and distribution processes. All of these improvements will contribute greatly towards positioning life insurance as something that delivers value for consumers well into the future.