Smart Investor blue ribbon awards: insurance

Smart Investor, September 2011

The Queensland floods and Cyclone Yasi provided painful evidence of the need for insurance – and the need to be clear on exactly what coverage you have. By late June, member companies of the Insurance Council of Australia had received $3.64 billion in claims – 68,300 individual claims due to Cyclone Yasi, and 56,200 from the floods – and had paid out $1.93 billion. But for all of those who had received payments in order to rebuild their lives, there were plenty who had never been covered for flood in particular; their plight continues.

With insurance so clearly in the national consciousness, it is a good time to reward those products that look after their customers with clear, reliable policies. With our partners Rice Warner Actuaries, we give awards in three categories (income protection, term/TPD and trauma), alongside the overall life company award detailed earlier in this section.

Rice Warner looks at three key elements of insurance products: price, features, and the financial strength of the insurer, based on Standard & Poor’s ratings. It gives points for particular features, weighted according to the importance of that feature to the life insured; price is assessed across a range of ages, occupations, sums and insured and other rating factors such as sex and smoker status. “The scoring methodology recognises the trade-off between price, features and financial strength,” our judges explain. “A product with only basic features can still win if it is very cheap, and a product that has strong features can win even if it is relatively expensive.”

OnePath – also the winner of the overall life company award – won our income protection category with its OnePath OneCare Income Secure Standard policy, seeing off competition from AIA and BT. The judges praised the strong balance of features and price, as well as the fact that, having been sold to ANZ, it has an even stronger financial rating than before. In particular, Rice Warner says it “includes a winning list of benefits and options on the ‘standard featured’ product”, including the premier accident option, serious disability premium waiver, and conversion to living expenses cover. On top of that, the standard featured product is relatively cheap, “across a wide spectrum of occupations from professional to heavy manual, and across different ages.”

At One Path, Gerard Kerr, head of retail risk, marketing and reinsurance, says he expects income protection to continue to be a popular product. “Whether you’re single or in a family, it’s a necessary product line,” he says. “You could call it a selfish product: something every individual should do to protect themselves.”

Its popularity is going to be driven by changes in the way we tend to work. “We see more and more of us going to age 70 as expiry [of the policy] – that’s becoming the new benchmark,” says Kerr. “It’s moving up because people are having to work longer.” He also sees an uptick in policies suited to spouses, students and older people, keen to protect their independence.

In term life/TPD, Zurich Protection Plus Death Cover took the award, beating Asteron and OnePath. Rice Warner admired its combination of features, price and a solid insurer financial strength rating. “It is strong across all feature assessment factors and includes a comprehensive list of benefits and options,” our judges said, noting accidental injury benefit, buy back death benefit, the double TPD option and partial TPD benefit.

Marc Fabris, national manager – sales strategies and research for life risk at Zurich, says that the market has slowed down in terms of new policies, after “tremendous growth in the prior 12 to 18 months.” What happened was that after the global financial crisis, a national mood of risk aversion pushed life policies up dramatically, but that growth has now stabilised.

Within that, there are distinct patterns. Fabris notices that Zurich has almost doubled the proportion of its business in the 50-60 age bracket, and that the average age from which applications appear has been increasing every year. “It makes sense when you realise that people are retaining debt when they’re older, taking on new debt, and having families much later,” he says. “This means people have a greater need for cover at older ages.”

Zurich continues to try to improve its policy, and recently announced a number of new measures, including further reductions in price. Within that 50-60 area, for example, it has sought to reduce costs in order to make insurance affordably at older ages. Across the industry, one approach to the challenge of affordability later in life has been to develop hybrid insurance policies, in which premiums drop down as needs decline and some premiums are returned. But Fabris does counsel against making things too complicated. “Yes we need to continue refining, but the more complex we seem to get, the more it becomes confusing. At the end of the day the fundamentals don’t change drastically.” Kerr at OnePath makes a similar point about simple necessity. “Term/TPD is going to continue to be a core component, because it’s the base essential cover that people need to have. The more people who take it up, the better: it’s all eating into the insurance gap.”

Zurich has also tried to focus on process, efficiency, and electronic services and applications. “The market has come leaps and bounds from the paper-based industry it once was,” Fabris says.

Our trauma category was won by CommInsure’s Total Care Plan Trauma Cover. AMP and Asteron were the other finalists. Once again, Rice Warner was attracted by the combination of features, price and financial backing; it’s notable that all three of our winners are backed either by a big four Australian bank or a global powerhouse.

The CommInsure product, allowing a sum insured up to $2 million and full cover up to age 80, covers a wide range of claim events such as heart conditions, cancer and stroke, and allows more than one claim for partial payment on angioplasty. It also offers a full range of policy upgrade options.

Is use of trauma insurance increasing? “Yes, but very slowly,” says Tim Browne, general manager for retail advice at CommInsure. “It is often the last type of insurance purchased, after death cover, total and permanent disablement, and income protection. Due to the cost of the risks covered, it is often the most expensive.” Browne says less than 5% of the working population owns a trauma insurance policy – very low, considering that more than 50% have death cover held inside or outside of superannuation.

Browne believes the key to a good trauma policy is user friendly insurance, with relevant and easily understood definitions; reasonable premium; and good service and claims experience.

For the insurance industry generally, it’s a time of some uncertainty: regulatory change will have an impact on the way that insurance is sold, but at the same time, the industry doesn’t yet know exactly how. Nevertheless, providers say the dynamics for insurance are strong. Browne points to “an increased awareness for the need for security post-GFC, the potential for wider access to advice, and a large relatively untapped market – there are still far too many Australians that are underinsured or have no insurance at all.” Increasing customer awareness about types of insurance will boost take-up, and whatever happens with new legislation, customers will still require advice on insurance, he says.

Insurance is, after all, fundamentally a simple business. “It’s taken the GFC and everything else that has been thrown at it, but it’s quite resilient: it’s been around for a hundred-odd years and a couple of world wars,” says Kerr. “But that makes sense. We’re all terminal, so why wouldn’t you do this?”

Boxes:

INCOME PROTECTION

OnePath – OneCare Income Secure Standard

Features

Benefits include rehabilitation and retraining expenses benefit, unemployment benefit, and many options including increasing claim option, accident option and priority income option.

Sum insured

Up to $60,000 per month (amounts insured over $30,000 are limited to a two year benefit period)

S&P rating

AA

Age cover provided

Depends on the benefit period selected.

What the judges say

OnePath OneCare Income Secure Standard has a strong balance of features and price. It is very competitive in price across the wide spectrum of occupations and ages.

Highly Commended

BT Income Protection and AIA Australia Income Protection Plan

TERM/TPD

Zurich Protection Plus – Death Cover

Features

Benefits include advancement for funeral expenses, financial planning advice, future insurability, and premium freeze. Options include premium waiver, business future cover, and ADL.

Sum insured

Unlimited; up to $5 million for TPD.

S&P rating

A+

Age cover provided

Up to age 99 for TPD (TPD benefit eligibility changes after age 64)

What the judges say

Zurich Protection Plus Death Cover has a winning balance of both features and price across all ages and occupations. It includes a comprehensive list of benefits and options with a very competitive price.

Highly Commended

One Path OneCare Life Cover, Asteron Life Cover

TRAUMA

Comminsure Total Care Plan – Trauma Cover

Features

Benefits include financial planning, loyalty bonus and trauma cover buy back. Options include business safe cover and child cover.

Sum insured

Up to $2 million

S&P rating

AA

Age cover provided

Full cover up to age 80 (benefit eligibility changes after age 70)

What the judges say

CommInsure Total Care Plan Trauma is a well featured trauma product matched with a very competitive price provided by a strong financial institution.

Highly Commended

Asteron Recovery Stand Alone and AMP Trauma Cover Optimum