AFA bites back at Maurice Blackburn

Last week, APRA and ASIC revealed claims and dispute “ratios” across each life insurance sales channel, with the claims ratio defined as the dollars paid out as a percentage of total premiums paid and the dispute ratio defined as the numbers of disputes per 100,000 people insured.

But Maurice Blackburn seized on the opportunity to point out that the ratios were significantly more positive in group insurance than through the advised channels.

“The data shows that the claims paid ratio for super total and permanent disability insurance was 85 per cent, compared with 45 per cent when sold by financial advisers,” said Maurice Blackburn super and insurance principal Josh Mennen.

“This reinforces that while adviser-sold policies are often marketed as a bespoke product, too often they are compromised by conflicts of interest, including insurers paying trailing commissions that result in poor product selection and claim disputes caused by underwriting complications.”

Now the AFA has issued a response, saying Maurice Blackburn “jumped to a range of conclusions” in questioning the value of life insurance obtained through financial advisers.

“The average claim benefits demonstrate very clearly that those clients who receive specific tailored life insurance advice from a financial adviser receive a benefit far more relevant to their circumstances and their household debt and living costs,” the AFA said in a statement. “This clearly demonstrates significantly more value for financial advice clients.”

At issue is Maurice Blackburn’s use of the claims paid ratio as the “sole determining factor of value”. The AFA points out that this measure – while useful – is not a complete measure, as it does not include all costs that clients experience and does not take into account product complexity.

“A true measure of the direct benefit to clients/group super fund members would be the net return to clients/members divided by the total cost to clients/members,” the AFA said. “This is the actual amount of money in the hands of the client after the finalisation of a successful claim. In the majority of cases, where a financial advice client experiences a life insurance claims event, their financial adviser will assist them or their loved ones to make a claim at no additional cost.”

The AFA also points out that group super products are simpler products due to the fact that they are insuring larger amounts of people and so is no requirement for underwriting provided the member is being insured for less than the automatic acceptance limit. Group super premiums also don’t include any ongoing advice or support to ensure that coverage continues to align with client needs, and do not provide the “emotional benefit” of a client having confidence that they have the right level of insurance.

“We welcome further investigation of the APRA claims and disputes data and will not be leaping to conclusions or making broad unsubstantiated claims,” the AFA said. “Neither will we be seeking to undermine consumer confidence in one segment of the life insurance market at this most challenging time as the country comes to terms with the impact of the coronavirus pandemic.”