Challenges confronting the Life Insurance Market

AFA News 20 November 2020. The ASIC review into Life Insurance Advice will be a significant determinant in the outcome of the LIF review and the government response. It is important to reinforce that there are currently no proposed changes to commissions on Life Insurance. Changes, if any, will not be proposed until after the review in late 2021 and the ultimate response from Government in early 2022.

The AFA continues to engage with key industry stakeholders to ensure that the debate around remuneration is educated and informed. An important component is the Joint Associations Task comprising Members of the AFA and FPA. The objective is to provide a cohesive and united message on behalf of advisers to ensure we leverage the power of many voices.

Another initiative is CALI, Choice (and) Access (to) Life Insurance. CALI was formed by the major Life Insurers AIA, TAL, MLC and Zurich/OnePath,  in conjunction with the AFA and FPA, with a view to not only showing a cohesive industry approach, but also actively engaging in research to ensure that the debate is fact based and informed.

CALI recently released a White Paper, “Challenges of the Life Insurance Market” off the back of the research report undertaken by NMG.


Life insurance is an important financial product for most Australians. The Australian life insurance sector supports informed debate about the future of life insurance, community expectations, accessibility challenges and the possible risks and costs of different regulatory proposals for policy holders, the community and government.

To assist, NMG was commissioned to undertake a review of:

  • Community expectations of life insurance;
  • International markets; and
  • Trends in the Australian markets including the impacts of recent regulatory changes.

NMG and respected research firm Colmar Brunton found ordinary Australians believe that adequate life insurance protection is not about ‘winning the lottery’ but rather ensuring mid-term quality of life and enabling people to reset in terms of returning to work or restructuring their finances. They are comfortable with the market providing this protection. Community standards on the protection required to prevent financial hardship are conservative.

Significant demographic pockets of underinsurance are emerging. The NMG research reveals that individual life insurance could become a product accessible only by Australia’s wealthy. There is a material access gap emerging impacting lower to middle income Australians when they need advice at key stages of life, like buying a home, starting a family, or transitioning to retirement.

Applying conservative assumptions, the NMG modelling shows today one in five young Australians aged 25 – 35, have dependents who will face financial hardship if they die because they have less insurance than the community standard. Similarly, 20% of middle-aged Australians (35 – 44) have less life insurance than the community standard, predominantly middle-income households with children and mortgages. Group life insurance is not enough. For some older Australians they are stuck with more insurance than they need because they cannot obtain the advice to create a “glide path” to retirement.

The ongoing decline in the total number of financial advisers, combined with the rational adviser shift to focus on fewer, higher value customers and more frequent reviews will reduce coverage to the top less than 15% of the financially active population within 3 years. The cumulative impact of recent changes, plus those being considered, will have an overwhelming impact on Australians when they are most vulnerable – after the death of a partner, disability, injury or illness. The research shows Australia has the most extreme restrictions on distribution compared to global peers.”

Next Steps

The White Paper and NMG Research Report are being presented to key stakeholders to better facilitate an understanding of the expectations of the Australian consumer and to educate on the need for choice to enable everyday Australians to access affordable financial advice on Life Insurance to meet their changing needs. It highlights the importance of advice and the role of the adviser.

To date we have presented the White paper to ASIC; the Government -Assistant Minister for Superannuation, Financial Services and Fintech, Senator Jane Hume; the opposition – Shadow Treasurer and Shadow Minister for Financial Services, Stephen Jones MP.

Following on from this will be a number of representations to other key Senators and MPs.

We also encourage all of our members to share the research to strengthen the message into the community.

While we don’t expect any instant results we know this is part of a broader plan as we work together to ensure that long term, consumers will retain choice and commissions will be a fundamental component to ensure Australians can access the advice they deserve.

Issued 20.11.2020. AFA Risk News