Risk ignored is risk multiplied – The imperative for advisers to re-embrace personal risk insurance

Unrelenting regulatory interventions have led to the collapse of adviser numbers from 29,100 (Q1 2019) to 16,300 (Q1 2023). During that same period, new business in the retail life insurance market contracted by 37 per cent.

Personal risk insurance is not merely an add-on in comprehensive financial planning, it’s the linchpin. It serves as a financial bulwark for individuals and families, shielding them from unexpected financial adversities. Disregarding this critical element exposes clients to considerable risks.

In the grand scheme of things, we’re looking at a staggering 1.0 million Australians who are underinsured for death/TPD, and a whopping 3.4 million who are underinsured for income protection. It’s a sobering reality that underscores the magnitude of the issue at hand. The situation is further exacerbated by ongoing policy lapses and a trend among advisers to zero in on higher-value clients. This approach is leading to a steady decline in the total number of in-force advised policies. If we continue down this path, we’re staring down the barrel of a 17 per cent drop in the number of advised in-force policies by 2027. This downward trajectory will only widen the underinsurance gap, leaving more Australians vulnerable to financial hardship. It’s a ticking time bomb, and as licensees and advisers, we have the power – and the responsibility – to defuse it.

Advisers who sidestep personal risk insurance can inadvertently set their clients on a path strewn with potential financial landmines. Without sufficient insurance, an unforeseen illness or accident can escalate a manageable situation into a financial catastrophe. By advocating risk insurance, we can steer clients away from these uncertainties and fortify their financial future.

The psychological toll on clients who face financial hardship due to a lack of risk insurance advice is a reality we must not ignore. The financial strain is just the tip of the iceberg. Beneath the surface, there’s a torrent of stress, anxiety, and uncertainty that can ripple through every aspect of their lives. It’s a domino effect, with one financial setback triggering a cascade of personal and emotional upheaval. As advisers, we must remember that our advice (or lack thereof) doesn’t just impact the client’s wallet – it reverberates through their entire life.

The legal landscape for advisers who fail to provide comprehensive advice, including risk insurance, is fraught with potential pitfalls. The law doesn’t look kindly on negligence or omission. Advisers who sidestep risk insurance advice may find themselves in the crosshairs of legal action, facing allegations of professional negligence. The potential legal repercussions are not just a threat to the adviser’s reputation, but they can also lead to significant financial penalties. It’s a high-stakes game where the risk of losing is simply too great.

The choice to sidestep risk insurance advice can also impact the long-term value of an advisory business. Advisers forge their reputation on trust and their prowess in navigating clients through intricate financial terrains. Neglecting to advise on risk insurance can chip away at this trust, potentially leading to client attrition and a dip in business value.

However, the narrative doesn’t end at the potential risks. There’s a silver lining for advisers who elect to weave risk insurance into their practice. Risk insurance can be a profitable addition to an adviser’s portfolio, generating a consistent stream of renewal commission income. It diversifies income streams and bolsters profitability, contributing to long-term viability.

Beyond commission income, advisers can supplement their earnings with a well-crafted hybrid commission-fee model. While the prospect of introducing fees may seem intimidating, with effective communication, clients can appreciate the value they’re receiving. This strategy can result in a more stable income, less susceptible to market fluctuations.

Adding to the narrative, it’s essential to consider the role of your licensee in this equation. If your licensee isn’t encouraging you to bring risk back into your business, they’re doing you a disservice, and selling you short. The licensee should be your guiding light, illuminating the path to a comprehensive advisory practice that includes risk insurance. If they’re not championing this cause, they’re not just sidelining a crucial aspect of financial planning, they’re sidelining your potential for growth, profitability, and client satisfaction. It’s a stark reality, but one that needs to be confronted. If your licensee isn’t part of the solution, they could very well be part of the problem.

In the digital age, technology is a game-changer, making risk insurance more accessible and understandable for clients. Sophisticated platforms and tools can demystify risk insurance, breaking down complex concepts into digestible information. Clients can explore different scenarios, understand the implications, and make informed decisions. For advisers, technology can streamline processes, enhance client engagement, and ultimately, drive business growth. In the realm of risk insurance, technology isn’t just a tool – it’s a catalyst for change and progress.

Critically, if the prospect of diving back into risk insurance is daunting, there’s another avenue to explore. Many of our advisers are opting for a joint venture with an insurance specialist. This collaborative approach allows them to tap into the expertise of a specialist, ensuring their clients receive topnotch advice without the adviser needing to become an expert overnight. It’s a win-win situation: the adviser can expand their service offering, the specialist gains access to a new client base, and the client receives comprehensive advice. It’s a testament to the power of collaboration and a shining example of how we can adapt and thrive in the face of change.

In conclusion, the decision to disregard personal risk insurance is a gamble too risky to take. It not only leaves clients exposed to potential financial hardships but also impacts the long-term value and profitability of the advisory business.

Keith Cullen, CEO, WT Financial Group Limited