Life insurance products MIA
Russell Hutchinson asks: What’s missing from the life insurance picture and comes up with a good list.
Tuesday, July 9th 2024, 11:26AM 
1 Comment
by Russell Hutchinson
Recently I was asked again to think about what’s missing from the life and health insurance product landscape.
Here is what I came up with. It is far from an exhaustive list, but I think, worth considering.
Traditional or with-profits business has almost entirely disappeared. I remember why this product has ceased to exist – it was attacked as poor value for money, largely due to the high commissions paid for what included a substantial investment component.
Recently (some) journalists have attacked term insurance as problematic because it has no residual policy value for the client that makes no claims.
Then the regulatory environment moved in a way which, as an unintended consequence, drove a wedge between insurance and investment products by giving a lighter-touch regulatory regime to products without an investment component.
Today with a common regulatory regime (while accepting that the issue of competence to give advice remains), perhaps there is an opportunity for a low-commission with-profits product to return to the market?
Annuities are also missing. In a recent meeting I somewhat blithely dismissed annuities as tax inefficient.
That view was challenged by a reinsurer analyst who pointed out the value of annuities in removing capital from a means-tested benefit calculation.
I would highlight the impact of means-testing in for aged care support as an excellent example. The loss of capital through nursing home costs can be very rapid.
Another would be a wealth tax, such as that proposed by the Green Party. The argument that annuities are tax inefficient is therefore considering tax too narrowly by failing to take into account benefit eligibility and future tax changes that are possible.
These suggest that offering an annuity may be worth considering under certain future planning scenarios.
Long-term care insurance is also missing. We have commenced work on a market overview of the elderly care sector.
This is not yet ready for publication, but will be available in the next quarter, covering the demographic shifts that are changing the age and care profile of the elderly in New Zealand.
Cancellable income protection product was once offered by some life insurers. There is an argument that short-term income protection benefits which terminate after the claim period is exhausted are, in effect, close to a cancellable product.
Trauma insurance, without a buyback, is a one-shot product too – and yet still very valuable.
With ASIC’s approach to regulation of the income protect market in Australia, this is a product that could again be considered.
Filling out the range in this way could add more options to bring people into the market that may be excluded now because of price.
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That last on on bringing back cancellable contracts I consider probematic as the reality fo multiple disability claims is quite present. After having one you are more likely to have another.
As an adviser I wouldn’t recomment a cancelable contract of this nature over say a contract with a shorter payment term that resets with a 90 day wait.
Say a 2 year benefit term which resets after being back at work for 12 months as many are now.
The reality was the cancelable contracts of their time were dogs, they typically were in the self-employed space and represented significant risk to the policyholder of not having coverage they had paid for when they really needed it.