Opinion: How much trauma cover is enough?

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Trauma Cover Part Two: Are we thinking things through or just doing what we have always done? A riposte.

Monday, September 15th 2025, 7:43PM 2 Comments

by Steve Wright

In a recent article and associated comments, several issues were raised regarding trauma cover, for which I’m grateful. I believe debate about product, advice and advice philosophies is to be encouraged, it’s critically important for improving knowledge and understanding, allowing us to improve our craft as advisers and better serve our clients. 

Incidentally, if you read the article and some comments, you would be forgiven for getting the impression that trauma cover ranks behind income protection and medical insurance in importance and value.

I don’t agree with any such sentiment. For clients who don’t work, or who work in uninsurable (for income protection) occupations, income protection is of very limited, if any, value: whereas trauma type covers, imperfect as they may be, are of immense value. 

The value of any insurance product depends entirely on the need for it by the client. Taking pre-determined judgemental positions about the value of products in isolation of client need is counter-productive to providing clients with the most suitable product recommendations.

Back to the original article and in particular, one commentator’s following question:

“… why isn’t “I recommend as much you can afford for as long as you can afford it” perfectly acceptable when addressing trauma cover needs? (Not a rhetorical question.)”

So here are some thoughts.

Yes, it is true that one of the ‘problems’ with trauma cover is that it typically both over and underinsures at the same time. This is because the financial consequences of suffering a trauma condition are not easily quantified and can range from effectively nil to many hundreds of thousands of dollars, even seven figures in extreme cases.

One product cannot cover all of those potential consequences unless the sum insured is very high, and most can’t afford anywhere near what might be needed. The end result is usually quite inefficient and provides some overinsurance the cost of which is significant underinsurance.

Of course, income protection and medical insurance can cover some, perhaps even most of the financial risk of serious illness or injury, but almost certainly not all. 

Incidentally, it’s not only trauma cover that is imperfect:

• TPD also both over and underinsures, because while it offers cover for a broader range of conditions, it also pays the same benefit regardless of financial consequence; 
• Income protection is not perfect either because often reimbursement of typically less than 100% of pre-disability earnings doesn’t cover all the lost income or additional costs of disability; 
• Medical insurance, doesn’t always come to the party either, think chronic conditions like multiple sclerosis, for example;
• Even Life Cover, on its own, has inefficiencies and weaknesses.

No risks faced by any individual can be best protected by one product alone.

Closing the numerous protection gaps that the ‘main’ products (whatever those are) inevitably leave, requires understanding of all other products available and knowledge of how to combine these in a way that efficiently (no wasted premium spend) minimises the gaps.

This is what I think ‘prudent’ advisers will be expected to recommend to ensure suitability standards under the Code are met.  Failure to do this unnecessarily increases the possibility for successful complaints. 

In my view, the problem with ‘expensive’ comprehensive trauma covers (both over and underinsuring at the same time and affordability) arises because this one product is generally expected to cover the full spectrum of potential financial risk.

I believe (for families, not necessarily business risk), the better way of insuring against severe illness or injury risk, is to recognise there are multiple risk levels, based on the financial consequences such illness or injury is likely to cause. If properly done, this allows for more accurate (and believable) quantification of financial risk and determination of likely risk incidence, as well as more efficient allocation of suitable insurance product to cover each such risk level.

Advisers now have access to four or five types of ‘trauma product’, each designed to cover illness or injury of a specified type and likely severity level, and at an appropriate premium for likely incidence rates.

Combining multiple products that more specifically target these risk levels better, allows overall trauma insurance cover that more closely aligns with actual likely consequences and at premium cost allowing higher levels of cover for when it’s really needed – suffering the most severe illness and injury.

Incidentally, the recommendation should be motivated by broader cover at suitable levels, rather than premium saving.

Premium saving actions should be at the client’s request, not pre-empted by their adviser.

Is this a perfect solution?

No, but we can only recommend solutions available in the moment.

Is this difficult to explain to clients? Maybe, maybe not. (I believe clients will actually understand the need better by more precise quantification of different risk levels.)

Is this more work for advisers? Definitely, but advisers who value advice will welcome better solutions for their clients and will adjust their advice processes and education of clients appropriately.

Does this require extra work at review? Maybe, maybe not, many clients need constant reminder of their need and why their insurance package is suitable.

Can the addition, of these ‘fringe products’, that many advisers don’t ever recommend or even know about, allow for better, more efficient, client outcomes? Absolutely.

So, finally to answer the ‘not rhetorical’ question.

I suspect an approach, to … ‘recommend as much you can afford for as long as you can afford it” may not be solely necessary if trauma risk is suitably broken down by likely severity of consequences. (We have work to do to determine these levels by the way, but an examination of specific condition and moderate, major and severe trauma product condition definitions, gives us valuable clues).  

Either way, I’d still want to ensure that clients get enough information to make informed decisions and that advisers investigate the suitability of recommending multiple trauma products rather than one.

We should ensure that:

• the client’s full potential financial exposure, not adequately covered by Income Protection, TPD and Medical Insurance, is explained and understood by the client.  (Trauma risk is pure risk, there is not much clients can do to avoid or reduce it and aside from the quantification of loss of income (life assured and their spouse partner) for working age clients, many financial consequences will be similar regardless of personal circumstances); and
• a genuine assessment is made into how multiple available and suitable ‘trauma’ products, considered in combination, may more efficiently and better cover the spread of likely financial risk that serious and severe illness or injury leaves each individual client exposed to.  Our aim should be to reduce the over and underinsurance inherent in recommending only one trauma cover product. 

What the client ultimately decides to do following a suitable recommendation, is a separate part of the exercise and should be at their request.

New laws and regulations have lifted the bar when it comes to giving advice and new products introduced in the last decade or so have improved our ability to deliver better recommendations. 

So no, I don’t believe we can continue just doing what we have always done.

Steve Wright has qualifications in economics, law, tax, and financial planning. He has spent the last 20 years in sales, product, and professional development roles with insurers. He is now independent and helping advisers mitigate advice risk through training and advice coaching.

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