Opinion: Think big for risk

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Over the years I often see stats that show more people own life insurance than disability insurance. I had not thought, until recently, to ask why – duh.

Tuesday, December 2nd 2008, 5:04AM

by Russell Hutchinson

While you might have reasons good enough for you, I’ve discarded the obvious “It costs more” – as plain loopy. You get more money back (ask an insurer that is more profitable), you are more likely to claim – because lots of things that will keep you off work won’t kill you – and most consumers can spot that.

So, just a little less innocently, I asked the hard question: “Why is this?”

There may be a good explanation – people are comfortable with smaller risks but very unhappy about big ones. I owe this revelation and some great research background to Brian Lenehan of Asteron. Milton Friedman did some fascinating work on this, and he didn’t have the commission incentive you do.

Turning to the practical implication of this work of genius, in selling risk: make the sums large. This is counter-intuitive. We tend to think of our income in paycheck sized chunks. The finance companies work out the payments on HP to weekly – everyone else wants to make it sound small.

But when selling income protection, we should revert to an old fashioned argument and show the client how “You will earn a fortune”. That’s a sales tool which helped people work out how much they will earn in the balance of their working life.

Then focus on showing the client the large, even catastrophic risks associated with losing that income. Anything less leads them to the conclusion that risks to their income may be only small and episodic, and therefore manageable without any cover.

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