The new-client conveyor-belt is broken

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There is a crisis developing in insurance and advisers can step up to fix the problem.

Wednesday, May 25th 2022, 10:52AM 1 Comment

by Russell Hutchinson

Financial advisers often help clients that have a little bit of existing insurance but need more. They pick up clients that have frequently purchased some life insurance earlier.

Advisers take these clients, educate them, and expand the range of cover that they have considerably. These clients were typically initially clients of a lender strongly suggested that they have some form of insurance cover on borrowing.

For some clients, their car dealer, offering some very poor value-for-money credit protection cover – was their entry-point to the world of insurance.

The second point on the conveyor-belt to better cover may have been applying for a home loan. Some skipped straight to that point.

We have always known that credit protection insurance was not-very-good, often with very limited underwriting, low cover levels, and very little integration into the holder’s wider financial life.

It was a bad deal, but it was a start.

Today that start is broken. It has been broken in two ways.

The credit insurers have been scared off from the segment by investigations into low value cover that started in Australia and were then adopted here over the last few years.

I dislike this low-value cover. Just like I dislike much fast food. It’s bad value for money, it is a quick solution which tends to create longer-term problems, like obesity if used frequently, in the case of food, or damaging the reputation of the insurance sector in the case of much credit-related insurance.

Most advisers and many insurers were happy for regulators to go after that part of the sector.

Then there is the issue of mortgage-related sales.

These have been hit hard in two ways. The first is that since 2008 banks have been increasingly less likely to push hard to make insurance sales.

Worries about exposure to risks associated with insurance advice have grown and the banks responded by selling their insurance businesses.

Along the way first home buying became so ruinously expensive that bright young things in their 20s were no longer able to buy until much later in life.

That shift has depressed the proportion of the population that can aspire to owning a home and with it reduced the deal flow at the younger ages where insurance sales were easy and brought new clients into the market.

I am beginning to think we are going to miss these clients badly.

New client acquisition at the younger end of the client spectrum has dropped.

Lapse rates have continued at the levels typical for the last four or five years. The impact is that for the first time in years the number of people holding insurance has been falling.

The proportion of people holding cover had been falling for some years as we never wrote up as many lives as people joined the market, but hitherto we had not seen a strong net reduction in lives.

Of course, there is no reason why a client cannot just jump straight from ‘no cover’ to a ‘full risk plan’.

It’s just that it doesn’t seem to happen as much – advisers who might be expected to take up the slack have not yet fully taken FSLAA into their stride.

Almost every insurer I know wants you to succeed at that. Lots of consumers need you – there is plenty of market opportunity, after all, so for everyone’s sake, we hope you get your full licence application in soon.

Tags: Opinion

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