AFA exposes cracks in direct life ratings

The AFA has refuted recent research on direct insurance satisfaction.


By Daniel Paperny

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Higher approval ratings for direct life insurance should be questioned because they fail to account for customers’ experiences in making a claim, according to Association of Financial Advisers (AFA) chief executive Brad Fox.

Responding to recent Roy Morgan research that found customers who purchased life insurance directly through an insurer were more satisfied than those who had gone through a financial adviser, Fox said the direct channel provided less certainty for consumers because policies were not underwritten until a claim was lodged.

“Clearly, the consumer experience when purchasing direct life insurance may be perceived as better because the customer only has to answer a handful of questions, doesn’t have to go through the underwriting process, can make the purchase via credit card and have immediate cover put in place,” Fox said.

“But what have they actually bought? What happens at claim time?”

The research, which surveyed 9000 risk and life insurance policyholders in the 12 months to December 2016, revealed customers who personally purchased insurance from an insurer or bank branch were 76.4 per cent satisfied with their cover, and those who bought a policy online were 74.9 per cent satisfied.

This compared to 64.6 per cent satisfaction among those who had purchased risk or life insurance from an aligned financial adviser, and 58.4 per cent satisfaction for those who bought their policy from an independent adviser.

Fox said the data failed to account for the poor claim outcomes of direct life insurance.

“It is absolutely clear that the best way to reduce the risk of a policy not paying out at claim time is to see a financial adviser to arrange your life insurance needs,” Fox said.

“It will take longer to put the insurance in place because it will be carefully underwritten in line with your individual medical and family history before it is offered to you [but] this gives you greater certainty that you are covered if you have a claim.”

He added that while the opportunity to buy life insurance directly had opened up over the past few years, this had not led to a better overall claims experience, a situation that could be rectified if insurers were mandated to underwrite all direct policies at application time.

“At claim time, if a direct insurer determines you had health issues back when you purchased the policy, or even in the years before, they may only refund the premiums and not pay out,” he said.

“We think that is unconscionable.”

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