The importance of group insurance
Australia’s superannuation system stacks up well internationally. According to the OECD, our super system is broadly equitable, offers a robust safety net for pensioners, and has assets which are growing strongly as a percentage of GDP (ASFA, Australia’s super system stacks up well internationally, January 2019). As well as an income for retirement, most funds also offer their members default group life and total and permanent disability (TPD) insurance. According to Rice Warner, there are more than 13.5 million separate insurance policies held through super funds in Australia (Rice Warner, Insurance Through Superannuation 2016). But despite the numbers, underinsurance remains a serious problem in Australia.
We usually talk about group insurance in the context of superannuation funds, but group insurance is also provided to employees by their employers – both large and small. This type of cover has been around much longer than today’s super funds.
Group insurance through a super fund differs from life or TPD insurance taken out directly – because in the case of group insurance, the insurer agrees to offer insurance to the fund’s members without collecting detailed information about each person’s health. This makes the cover quick and easy for large numbers of people.
The provision of insurance through a group policy has many other benefits. It ensures that a much larger number of Australians have cover than would otherwise, and it keeps the cost of life insurance down. But it also has drawbacks. Chief among them is the fact that of the more than 70 per cent of Australian life insurance policies held through superannuation funds, many do not provide the level of cover required by individuals. It is estimated that the median level of life insurance provided through superannuation funds meets about 60 per cent of the basic insurance needs for average households, this drops below 60 percent where the household includes children. And worse still, the median level of life cover will provide just 38 per cent of the amount required to ensure that family members and dependants maintain their standard of living after the death of a parent or partner (Rice Warner, Insurance Through Superannuation 2016). In other words, underinsurance remains a serious problem even with widespread levels of insurance.
Facing the uncomfortable truths
Why are Australians so underinsured? Why are they reluctant to engage with their super fund or their insurer and seek life insurance?
One of the reasons is that many people don’t want to think (let alone talk) about their mortality, or the possibility of a serious accident. Research conducted by Integrity Life found that discussing what could happen financially, if the main breadwinner in the family were to die, was a topic many Australians avoid (survey of 1,000 Australians, January 2019). In fact, it ranked right behind sharing opinions about their partner’s friends and/or relatives. This is one of the problems which super funds (and insurers) need to find ways of overcoming. Life insurance will always be an emotional topic and decision, but it is—or should be—a rational financial decision.
The lack of trust in financial services is also contributing
Rapid legislative change, global economic uncertainty and the revelations from the Royal Commission have resulted in a lack of trust between Australians and the financial services industry. This combined with a general reluctance to discuss certain topics means the industry faces an uphill battle to address the underinsurance epidemic.
What can super funds and insurers do to help build trust?
Step one is for super funds to engage more closely with members, so they can raise awareness of the importance of insurance. The cover that many members within super funds get automatically is vital, but funds have a critical role to play in making sure their members are aware of the cover they hold, and in prompting them to assess whether or not they are sufficiently insured. This could mean increasing and/or tailoring their policy within their super fund, or adding to it by going directly to an insurer or a financial adviser.
Engagement key to addressing trust deficit
According to KPMG, super funds that deliver services with integrity, and are personalised and meet the expectations of members, have the strongest levels of member engagement. (KPMG Super Insights 2019). The same report highlighted customer centricity as a core priority. The challenge for super funds (and all financial services firms) is that customer expectations are higher than ever, and continue to increase as digital technologies, new service models, and disruptors re-set expectations of what can and should be achieved. Customer service expectations are increasingly driven by tech giants like Apple, Facebook and Google – which in general provide a far better and more personalised experience than we expect from our super fund or insurer.
If your product or customer experience are not right, there can be no real engagement. Yet poor and complex products and bad customer experiences are common.
How to engage
Success in driving engagement means a clear articulation of a unique customer promise – building the products and a service culture which backs up that promise, and consistently delivering. (KPMG Super Insights 2019). Product complexity is a challenge which needs addressing. It has long plagued the Australian insurance industry, which has some of the most complex income protection policies in the world. Complex products cause confusion, but more serious than that, they encourage distrust, because so many people believe that the complexity is there to protect the insurer not the insured, and to help insurers refuse claims.
The customer experience is equally important because service excellence drives engagement. At Integrity, before we designed our first products, we asked financial advisers how we could build a better customer experience. Asking the question led us to 15 major pain points we needed to solve before we went to market. A good example was the lack of transparency advisers felt they had around their clients’ applications. They said that once the application was lodged, they were rarely given updates or any information at all about its progress or outcome. We solved this (and many other) problems with the use of technology. We developed an adviser portal that gives advisers access to all the information they need in real time, including a daily roll up of notifications that focus on the things they need to action or submit.
From the end client perspective, seemingly small things can make a big difference. Making income protection payments on the same day as the claimant’s wage would have been paid, can make a huge difference to someone already under stress, as then a whole raft of other financial arrangements don’t need to be changed.
The bottom line is, and it sounds simple, that if super funds can get their product, message, and customer experience right—and insurers do the same—we will be a long way along the road to engagement. From engagement we can move to trust, informed decisions, and lower levels of underinsurance.
Thinking outside the box
Thinking outside the box can offer real insights. Constantly asking “is there a better way to do this” can offer some surprising insights. One of the major reasons for underinsurance is that insurers haven’t been good at communicating the benefits of their products in ways which resonate with clients. In order to communicate with clients, you first need to talk to them when and where they are most likely to listen. That’s why at Integrity we have embraced the use of social media (and a social media influencer) to create content for millennials who typically engage this way.
In addition to thinking outside the box, there are many ways in which super funds can draw on the experience of disruptor firms and other industry leaders, to increase engagement and open the conversation with members about insurance:
- Customer first. Say what you are going to do, simply and transparently, then do it. Sounds simple, but so often it doesn’t happen. Lots of businesses say they put their customer at the heart of what they do, but few always do. What is needed is a culture of customer service, and organisation-wide frameworks which make this happen. Don’t simply retain models and ways of working which don’t support customers’ best interests.
- Technology. Technology can play a big part in simplifying and speeding up every process. The global pandemic has forced many of us to learn new technology skills and work differently – the impetus for change was already there, now we are embracing it. The reams of paperwork which characterised the relationship between insurer and insured for example, can be significantly reduced using technology. At Integrity, we developed an adviser portal which saves significant time in doing pre-assessments, applications, and compliance. It also allows for the adviser to send the app directly to the client, so he/she can complete it online without the need for in-person meetings. The result has been that the time taken by customers to complete applications has more than halved, and there is less administration for everyone.
- Engagement is up to us. It is incumbent on insurers, super funds and the industry more broadly, to address the underinsurance epidemic by increasing Australians’ engagement with their super funds and their insurer. Part of the solution is to talk in customer centric language, to make the products more accessible and easier to understand.