While a majority of Australians are blissfully unaware they are underinsured, events such as the global financial crisis (GFC) and the Victorian bushfires have contributed to pushing the need for insurance into the forefront of Australians' minds.
"If you actually have a look at the increase in the take up of life insurance over recent years, it's actually been an ongoing trend in the last year because of those issues absolutely," Investment and Financial Services Association (IFSA) senior policy manager Emma Grainge says.
"Australians are generally very optimistic and I think what we've had in the last year is a period of instability that has affected peoples' financial security at a domestic level, and as a result they actually may now be looking to think about how they can insure and protect their financial security going forward.
"So yes, there are definitely a number of things that have given Australians pause for thought."
FPA chief executive Jo-Anne Bloch says the uncertainty that the GFC brought with it and the subsequent need to protect wealth has created a huge influx of new customers looking to secure appropriate life insurance, income protection and associated products.
"The issues arising out of the global financial crisis will continue to raise awareness and I think more people will want to insure their assets and I think that trend will continue," Bloch says.
While the market downturn has resulted in a buoyant time for risk advisers in the past 12 to 18 months, an increasing number of financial planners have become interested in writing risk insurance.
"We've definitely seen a lot of advisers that previously wouldn't write a lot of risk and are incidentally turning to risk, and I think part of that is a desire for them to offer a more holistic solution for their clients," MLC head of product insurance Sean McCormack observes.
"So as well as in providing an investment solution they also want to provide an insurance solution and, for some, a debt solution as well."
However, as the market improves the question is whether this trend will continue.
Association of Financial Advisers (AFA) chief executive Richard Klipin is hoping one of the sustainable changes from the GFC is that the people who took up and turned to risk will continue on that journey.
"The global financial crisis has forced people to challenge their own thinking - risk is an area of speciality, but once you get your head around the technical terms, the appropriate levels of cover, underwriting, medical limits . you know it's minimum competency and it's not that hard and I think the last 12 to 18 months people have kind of got over that issue," Klipin says.
"Look, the proof in the pudding will be in the eating ultimately, and I would hope and I would encourage all advisers to maintain that holistic approach whether they run a specialist or a generalist model."
For financial planners interested in writing more risk, the FPA launched its life risk specialist accreditation program 12 months ago, of which the first stream of financial planners recently graduated from.
"We're open for business for our second program and it's doing very well, and what that offers is education plus professional accreditation in the area of life insurance and risk insurance," Bloch says.
"We believe that is probably the most important thing that we can do - raise levels of professionalism, education and competency, not because they're bad at the moment but because consumers want to see that the person they are talking to has the qualifications that they would expect, and up until now that has been quite hard to understand.
"So with this designation we're hoping that consumer awareness will improve as well as for those people who have been through the program and who after the program will be very competent and well equipped to deliver life risk-type products."
The take up rate for the second program has doubled with up to 50 planners signing up for the course, she says.
"So yes it is gaining momentum, and yes we're getting good results, but we could improve; a lot more people could benefit from the program," she says.
The challenge in the next 12 to 18 months, according to Klipin, will be to ensure all advisers are either advising on insurance or covering it off with a referral relationship. "There's just not enough people who are confident and competent advising on risk," he says.
"If we had the vast majority of the 16,000 practitioners confident and comfortable about advising on risk, then that would go a long way to getting appropriate cover in place for their clients who obviously number in the millions."
He says this is a consumer education issue being addressed through collaboration among the major industry associations.
For example, the FPA and the AFA are currently supporting and leveraging the work of IFSA's Lifewise campaign, an industry resource that is alerting Australians to the broad lack of insurance.
"Obviously IFSA's taking the lead with Lifewise, both the AFA and the FPA are strongly supportive and I think the collective effort for the collective good is something that I think we will all continue to work on," Klipin says.
"I think doing it that way provides far better results and far better outcomes for everybody rather than having separate activities and separate efforts around major strategic issues."
Since IFSA's launch of Lifewise six months ago, Grainge says it has had around 11,000 people visit the website and use the calculator.
"They are a mixture of consumers, advisers and industry people really just logging on and having a look," she says.
"We've also worked constructively with our members to actually get Lifewise links and the use of the calculator via their website and via their marketing campaigns, so really the message is slowly getting out there, which is very rewarding."
A key part of the campaign has been for IFSA to engage with as many supporters as possible, she says. As a result, Lifewise has 80 supporters to date, ranging from various stakeholders in the financial services industry to superannuation funds as well as community groups.
"When we launched we had 50 supporters, so we've got 30 on board since. We've also got a very large number of financial advisers who are interested in what Lifewise is about and who are actually talking to people within their own communities about what Lifewise is about and the importance of insurance," Grainge says.
"The advisers are very positive about Lifewise - I think the issue, and all of the research backs it up, is that most people are actually blissfully unaware that they're underinsured.
"When they become aware that they haven't got enough, they actually want to know a little bit more, and importantly they want to know where they can find out more information, so that's really the gap that Lifewise fills.
"That really from an adviser's perspective has probably been the missing piece in the puzzle in the past."
Grainge adds IFSA is now working on developing the Lifewise campaign's focus of activity for 2010.
"We've identified that one of the main life stages where people are actually interested in seeking out information on insurance but don't actually know where to go is when they start a family," she says.
"So essentially we know new mums and new dads are desperate for information about how they can actually improve their long-term financial security.
"So what we've decided to do is actually focus on how we can communicate the value of insurance and the importance of considering insurance directly to those particular people, so we'll be developing our approach over the course of the next year by focusing on research and online communication methods directly to that audience."
IFSA also continues to work with the mental health sector - for which it has a memorandum of understanding in place - to improve the accessibility of life insurance for people with a history of mental illness.
Grainge says it is currently working with Beyond Blue on a leaflet that will be unveiled in November. "The leaflet will be designed for Australians and available through a range of different outlets, such as doctors' practices, and it will basically outline the fact that actually there are a number of myths out there that people may have about how insurance companies treat peoples' mental illness," she says.
"So it will basically present a myth and then a fact, so that's a very exciting development and we've had a really constructive partnership with the mental health sector over the years and that continues."
However, there is still much work to be done and a particular area Bloch says the industry must work towards improving is streamlining the delivery of life and risk insurance.
"I think there are still some fairly clunky complex processes involved in underwriting and claims management, so I think we can contribute to improving that," she says.
"We can also contribute to improving the way life insurance is disclosed and delivered to clients - I think we can improve the understanding of the benefits of life insurance, of the costs of life insurance and of how insurance fits into a portfolio.
"So that's not about underinsurance; that's about better explaining what it's all about and why it's important."
On the product manufacturing side of insurance, Klipin says life insurance companies have certainly picked up their game in recent years.
"There's plethora of product, there's terrific competition among the product providers, it's a lot easier today than it was five years ago to engage with them and to work with them," he says.
"There's been a huge innovation cycle in the insurance product area so it's been about better product, more innovative product, better features and benefits, better technology so that it's easier for consumers and it's easier for advisers."
Centric Wealth Advisers insurance adviser Terry Brain observes life insurance and the supplementary benefit of total and permanent disablement cover is slowly being commoditised by the industry.
"They've constantly been lifting the non-medical limits. I mean, when I came into the industry in 1970 if you were going to insure someone for more than $10,000 you would need a medical examination almost to do that," Brain says.
"These days if they're under 40 you can probably get by with $2 million with a blood test and a medical report, so it's becoming easier and easier - the insurers are trying to make it easier for people to obtain life insurance."
He adds technology is now driving this agenda even further because various insurers are coming to the market with their own means of automated lodgement and underwriting.
"Regretfully the big problem is that we suffer from enormous apathy. The vast amount of individuals in this country are significantly underinsured and it goes from product to product," he says.
"Whilst the main issue is life insurance, go further and look at the statistics for people who don't have income or salary continuance protection or don't have trauma cover and statistically, because technology is great at keeping us alive longer these days, that's where a lot of the claims really tend to focus."
The problem still stems back to the fact most people do not understand their own human life value unless someone can sit with them and explain those issues to them with real conviction, he says.
"I'm in my 60s now, but when I was 24, literally in my first year in the industry, I had a death claim ... it actually took a client that was dying and a claim waiting to happen to really make me understand what my own industry was about," he says.
"The worst part of it - I must confess what makes my blood boil - is the financial services industry is going through a circumstance now where they will abolish commissions on investment products and fair enough, but the only way that insurers can afford to sell insurance is by paying some sort of commission.
"It takes an insurer something like four-and-a-half years to break even for every policy that they sell, and you have this dreadful circumstance where some advisers say unless there is $2000 worth of revenue in a transaction, they can't even afford to see the client."
However, an alternative channel Australians can seek insurance coverage through is direct insurers such as Real Insurance and Insuranceline. While these insurers provide only basic coverage, they are increasingly gaining market traction.
"Most of those direct schemes have got limitations like $500,000 or something of that nature, but it's a hell of a lot better than $50,000 or none at all," Brain says.
"I certainly don't see them as a threat - I welcome their participation because what they are doing is they are further informing a very ill-informed market.
"Even plain vanilla cover is of itself a positive because we now have a generation that is emerging that will do everything via the web . and it means that technology and those direct businesses are going to have more and more impact going forward."
Risk and Investment Advisors Australia chief executive Les Mace welcomes the competition the direct insurers bring to the market.
"They have a place in the market and as they get bigger and they get stronger, there is some crossover between what we do and what they do," Mace says.
"We do it with advice obviously and they do it without, but our advisers have been noticing that those guys are starting to get some reasonable market share.
"In one way the competition is a good thing. Our job is to go out and analyse the full needs of the client, whereas they're really addressing single needs, so in one sense it creates an opportunity for our advisers because we can certainly uncover other needs and do a more comprehensive job."
He observes the direct insurers are also working more closely with mortgage originators.
"So they're out there and if anything they're helping raising the awareness of insurance and also there's a role for them to play with some financial planners who don't want to get involved in risk," he says.
"So they'll go to some of these direct providers and basically share client lists and have them directly market single-need insurance products to them.
"Our planners haven't taken that option up, but I think there may be a bit more of that in the future."
This trend will perhaps gain more momentum with specialist planning firms and accountancy practices that do not appoint risk specialists, he says.
"That's certainly an option for them, but again at the end of the day we're talking probably single-need rather than full comprehensive advice," he says.
Klipin adds the direct insurance providers' increasing market stake is a sign the insurance sector is maturing.
"I think it's just recognition that the market is more sophisticated and different folks like different channels whether it's direct, advice introduced or superannuation fund introduced," he says.
"But I obviously still think that if you want good appropriate cover you need to seek specialist advice, and that's not on the Internet or through your broad-based super fund, that can only be given by a specialist adviser."
While around 80 per cent of all insurance products are distributed through superannuation funds, he says another piece to the insurance puzzle is about addressing the adequacy issue and achieving more appropriate levels of insurance cover as part of the average Australian's superannuation portfolio.
"I think the insurance offering of all superannuation funds, obviously industry funds and also retail funds, is getting more comprehensive and obviously it's a really good start for your average person to have a modest level of cover, but I don't think it's the panacea," he says.
"Every Australian and every Australian family has a unique situation, and unique situations need personalised advice and personalised levels of cover and that's obviously only going to come through an advice medium." However, McCormack says the group insurance schemes offered through superannuation funds play a significant part in the life insurance market.
"You know for a lot of employees that will be the cover that they rely upon because they don't want to go see an adviser and receive tailored personal advice," he says.
"We're seeing a lot more new business come in through the superannuation environment, especially income protection.
"So over the past couple of years there's been a real move to insurance within superannuation - back in 2007 about 20 per cent of our business coming in was through super and that went up to about 31 per cent last year."
He adds MLC has also recently decided to change the default insurance premium option on its adviser quoting software from stepped to level premium for its Life Cover Super and Personal Protection Portfolio products.
"The reason why we changed the quoting software to default to level premiums is that we did a bit of research and we basically found that when clients were holding their insurance on a stepped premium, the chances of them cancelling or lapsing that cover was a lot higher than if they had the cover on a level premium," he says.
"Then when we looked at it even further we found out that after a given period of time when that lapse then occurred, they were actually cancelling their cover right at about the time when we would expect the claims experience to occur."
He says 36 per cent of all of MLC's new business coming in the door at the moment is on a level premium. "Three years ago that was 15 per cent, so it's gone up quite significantly," he says.
He attributes this success to working with the advisers and communicating to them the benefits of level premiums.
However, Mace says while there is a good case for level premiums, it does come with competitive pressures.
"The old argument is if someone's got a level policy, the next person that comes and knocks on the door and offers a stepped one seems to be offering the same thing at a cheaper price and you could come under competitive pressure, so that's why advisers have steered away from it in the past," he says.
Similarly, Brain says that in an ideal world level premium is definitely better, however, he points out there are two sides to the argument.
"The level premium, because of CPI increases, can creep up on a more dramatic plane than the stepped premium does," he says.
"I always try and give my clients both alternatives - I adopt some broad brush rules that if you're a professional and you're under 40 I really push hard on the level premium.
"I believe that all clients should be offered both alternatives because I think that one day given the litigious society that we live in, someone is going to die and the family lawyer is going to come along and say, 'why doesn't she or he have any life insurance?'
"The answer will be, 'it was just one of those stepped premiums and we just couldn't afford it anymore', and the question will be, 'didn't they tell you about level premiums?', and who knows, there may be one or two of those cases kicking round at the moment."
While McCormack believes level premiums are a more sustainable option for the client, he also advocates the importance of a life company to be sustainable as well.
"Some companies in a quest to chase market share at any cost, they will really push definitions and benefits too far," he says.
"So what happens then is their claims go up, and when their claims go up, their profitability falls and they have to increase premiums, so what can happen is that in an extreme case they have to increase premiums so much that they're just not competitive anymore in the new business market and they can close off a policy series.
"So not too many people in the industry really understand just how important and how detrimental to a customer that can be, because once you close off a policy series the customer might not get upgraded, so they don't have contemporary cover, but yet they're still paying for it."
