How to approach cover retention conversations with clients

Presenting for an MLC Life Insurance webinar, partner education manager Marshall Ross discussed how advisers should approach the conversation with a client considering cancelling their insurance cover, to ensure they are helping their client do what is best for them and their circumstances.

“Cost of living, of course, is impacting clients across the board and they’re assessing their affordability in relation to premium costs,” Ross said.

“Essentially, when someone makes a decision to cancel their insurance coverage, they’re saying they no longer see it as valuable enough to pay the appropriate premium for, something else has become a higher priority for them than paying that premium.

“We need to help them work through what that actually looks like and what their financial goals and priorities are and how the risk protection fits in to help them make a really informed decision, as opposed to potentially a reactive decision around cancelling those because they may not be aware of some of the alternatives and options that are available.”

Referencing data from an industry consulting group, NMG Consulting, Ross explained that the lapse rate on some insurance products has steadily increased since 2020.

Of the data included, lump sum benefits had seen the most significant rise, having increased from 13.4 per cent in 2020 to 16.5 per cent in 2024. Income protection policies have also increased from 11.8 per cent, hitting 13.7 per cent this year. The overall relapse rate, which was sitting at 12.6 per cent in 2020, is now hitting 15.1 per cent.

Ross noted that, in addition to cost-of-living pressures, other factors such as “products and grandfathering” are likely contributing to this trend.

Particularly as clients look for ways to cut costs, he highlighted the importance of education and consistent communication as they may experience “bill shock”, leading them to make decisions about their cover based on emotion, rather than what is actually best for them.

“We’ve got to be really consistent here with our education, continually providing reinforcement education to the client as to why they’ve got what they’ve got, tying it back to our original advice and making sure that if we are going to make changes that we were revisiting some of those original needs that came up,” Ross said.

“Bill shock, of course, is something that does happen. People get renewal notices and don’t often think about it in terms of back to that original need, but simply from a bill shock perspective, [and] may make decisions around cancellation.”

He explained that advisers need to ensure they are helping clients understand how best to balance their insurance needs with their financial priorities and allow them to maintain the appropriate level of cover for their personal circumstances as they shift over time.

“Clients may not be aware of what we can do for them to manage some of these retention issues, we need to educate them around the options that are available, the trade-offs that come with them. It’s not just an all or nothing of, ‘Well, I retain it in my current form, or I just cancel the cover all together’,” Ross said.

“There’s different levers we can pull, and different trade-offs that come with those levers as we pull them. The client’s own risk profile will change over time. What is most important to them will change over time.”

According to Ross, advisers need to take a balanced approach to their clients’ policy needs, ensuring they aren’t holding onto a product that may arguably offer greater value over a product that will deliver more of what the client needs.

“Clients don’t exist in a vacuum. They’re existing in their own little world, their own values, their own priorities,” he said.

“What we have to overlay it with is, it’s all well and good to say this product is more generous, or this product is more comprehensive, but the overlay has to be, do you value paying for those features versus potentially the opportunity cost of doing something else with that money? Where does this fit in overall priorities?

Ross added: “We’ve got to drill deep in these retention discussions. It’s all well and good to have a more generous product, but do we actually value paying for those features? How are they applicable to our specific situation? And how can we manage that over time?”