Adviser gap contributes to Aussies’ limited life insurance knowledge

New data has revealed a sharp decline in new life insurance policies issued, plummeting from 103,000 in 2018 to just 44,000 in 2023, sparking calls for a rethink of how financial advisers could help enhance product penetration and customer satisfaction.

According to the latest findings from the 2024 Australian Financial Advice Landscape Report, consumer attitudes towards life insurance are mixed. While the majority of Australians acknowledge the importance of having life insurance, nearly half of the population still lacks coverage.

This disparity points to a significant challenge for the industry: why are so many Australians not securing life insurance despite recognising its value?

The Adviser Ratings report highlights financial barriers as a key factor.

Namely, the firm found that while approximately 40 per cent of those without life insurance could afford a policy or financial advice, they remain uninsured. Compounding the issue, over 80 per cent of these individuals also lack a financial adviser, signalling a major opportunity for advisers to tap into this unmet need.

Moreover, the impersonal nature of acquiring insurance through superannuation funds is contributing to a lack of understanding among policyholders, according to Adviser Ratings, with less than one in 10 (8 per cent) policyholders purchasing their life insurance through an adviser, while as many as 62 per cent obtain insurance via their super fund.

Alarmingly, Adviser Ratings said, more than 30 per cent of policyholders are unaware of the specifics of their life insurance coverage.

“Frequent and rich communication from advisers can be a game-changer,” the firm said.

Despite the advice profession’s recent reluctance to offer risk advice, Adviser Ratings suggested that offering differentiated services, such as more personalised and informative client interactions, would help advisers gain market share.

Moreover, the firm said on the supply side, life insurance services are predominantly provided through licensees, however, there is a growing trend of companies with their own AFSL offering life insurance products through dealer-to-dealer service providers or other external groups.

“This shift highlights the need for practices to specialise in life insurance services, providing a more personalised and informed experience for clients,” Adviser Ratings said.

Ultimately, the firm underscored that the Australian life insurance market holds significant potential for growth and development.

“Financial advisers have a considerable opportunity to offer life insurance products that consumers understand and appreciate, addressing the current gap in awareness and personalised service seen with superfunds,” Adviser Ratings said.

“By uniting around a common goal, the life insurance industry and the advice profession can implement strategies and investments that ensure profitability for both advisers and insurers, ultimately benefiting policyholders.”