Insurance – the new reality

Group insurance policies have seen significant increases in premiums over recent times, including IOOF policies, from 1 July this year. Whilst advisers have reacted differently to the new reality of higher premiums and naturally, many have found them frustrating, others have been turning it to their advantage.

Conventional wisdom suggests that wholesale or group insurance premiums are significantly cheaper than retail premiums, as group coverage usually comes with a group discount. However, with group insurance premiums rising between 30 per cent and 200 per cent in just the last few years, this conventional wisdom is now being challenged.

What is more, the increases have been nearly unilateral across group insurance offerings in retail super funds, industry funds and even some of Australia's corporate in-house funds.

Taking advantage of insurance hikes

In many cases, premium increases on group policies have been so large and widespread that many advisers are realising there is an opportunity to contact clients to review their insurance arrangements. For many advisers the simplest and most effective way to open a conversation is to pro-actively look at the retail insurers for quote comparisons on behalf of clients.

And in many instances the quote comparisons have been turning up some surprising results. In some cases retail premiums are actually lower than the group life equivalent inside super.

In other cases, where there is only a small difference, some advisers are turning to the fine print to uncover which policies – on a like-for-like sum insured basis – offer the higher quality cover.

With insurance outside of super being cost-competitive with group insurance through super, advisers have focused attention on platforms as a potential source of insurance cover. Particularly so since platform providers such as IOOF, have moved to increase the choice and flexibility of insurance options by offering retail cover.

IOOF insurance specialist, Peter Stathis says that alternatives now available on platforms make comparison much easier, while usually having the benefit of being a guaranteed renewable policy.

"This allows the adviser to go to a client and say – I can provide you with the same amount and type of cover and you'll benefit by getting a non-cancellable policy compared to your current policy which can be subject to change," Mr Stathis said.

Extra insurance in place

While some clients will choose not to take up the opportunity for a review, others will see the merit of reviewing their overall insurance needs, both in and out of super, and in some cases increase or add new cover. For example, by putting in place the cover type that very few clients have, ie critical illness or trauma insurance outside of super.

Take-up of income protection inside platforms is relatively high, so it's certainly being used by advisers who want to provide their clients with more than the standard death and TPD available inside super.

Advice opportunities from Income Protection

Income protection within super also faces constraints from the SIS 'temporary incapacity' condition of release. For clients unfortunate enough to be incapacitated between jobs – under the letter of the law their group income may leave them uncovered as the SIS 'temporary incapacity' wording may make an explicit connection between being gainfully employed at the time of incapacitation.

Advisers can remedy this by replacing group income protection with retail income protection, still in super, but using a structure known as SuperLink. SuperLink consists of a policy inside super and a policy outside super where the client pays a small amount of premium from non-super (from their own pocket), so that if, for example, they're unlucky enough to be unemployed when a claim is made (and therefore don't meet a SIS condition of release) the insurer may pay the claim directly to your client from the non-super policy.

As with many areas of advice which have changed in recent years, insurance represents an opportunity to take a second look at your clients' needs. Whatever the outcomes of client engagement, the clients will feel a stronger connection and appreciation for their financial adviser for presenting alternatives.

The information contained in this newsletter is provided on behalf of the IOOF group of companies and is intended for financial adviser use only. It is given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. Any examples are for illustration purposes only and are based on the continuance of present laws and our interpretation of them at the time.