Original article from Glenda Korporaal @ The Australian.
Last week’s controversy over CommInsure’s hardline treatment of some insurance claims on Four Corners and the complaints reported in The Australian from the family of late cricketer Tony Greig are a timely reminder for all Australians to check their own personal insurance.
How people got their insurance and the nature of the policies involved — as well as the specific terms and conditions of each policy — could make a big difference to any payout in case of illness or injury.
These days life insurance is just as likely to be acquired by default through a person’s superannuation policy as through an active decision to buy it. Some level of life insurance is now included in the basic MySuper products that must now be provided as a default super option.
This means that, with the current compulsory superannuation regime, Australians can easily find themselves being charged for insurance cover they didn’t specifically opt for. Conversely, some people who are faced with illness or injury may find they do have insurance cover they didn’t realise they had, which could apply to their circumstances.
Most consumers will opt to buy their insurance from what they believe is a reputable company, if they have say in the matter. But in reality it is very difficult for them to make an accurate judgment on the likelihood of whether the insurer will take a hardline approach to paying out on claims.
In a bid to head off market concern, CommInsure has announced it will be “accelerating the planned upgrade” of the definitions of heart attack and severe rheumatoid arthritis in its trauma insurance policies.
Apologising to the customers highlighted in the program who had been battling to get their insurance claims paid, the insurer has also announced it would be referring complex claims to an independent panel for a review.
But the question may be whether the mea culpa from CommInsure and CBA chief executive Ian Narev will be enough to allay concern of superannuation funds and individuals who have policies with the insurance giant.
Australians have traditionally had a “set and forget” attitude to their insurance, particularly those associated with life insurance.
In 2014 the Financial Services Council teamed up with MetLife to produce an “Apathy to Action Report”.
It found that 75 per cent of Australians believed that “life insurance” only involved death cover, with most Australians failing to understand what life insurance coverage is or should be.
Only 48 per cent of those surveyed owned or knew they owned a life insurance policy. Two-thirds of these did not know how much they were covered for. The report found that “Australians overestimate the cost of life insurance and underestimate its value.”
Life insurance is increasingly being linked or even sold with other products that pay out in the event of illness or injury. These include:
● Trauma insurance, or critical illness insurance, pays a lump sum in the event of a specific event such as heart attack, cancer or a stroke, as defined in the policy.
● Total and permanent disability (TPD) insurance is often sold these days in connection with life insurance, paying out a lump sum if a person becomes disabled and is unable or unlikely to work again.
● Income protection insurance, which can be taken out in connection with a superannuation account as part of a package with life insurance and TPD.
The focus on life insurance has provoked differing responses.
Industry Superannuation Australia, which represents the industry superannuation sector, says commissions on life insurance should be banned and that a code of conduct is needed for the life insurance industry.
But the FSC counters this by pointing out that the life insurance industry is working on having a code of conduct in place by July next year following the 2015 Trowbridge review of the sector.
FSC chief executive Sally Loane says the code, “an industry first for life insurance”, is being developed through extensive public consultation with industry stakeholders, consumer groups and regulators.
“The code will commit life insurers to strong standards of customer service, and will enhance consumer protections in the key areas of underwriting and claims,” she says.
If anything the controversies have strengthened the argument for having a financial adviser to help consumers understand the complexities of life insurance products and how they relate to their own circumstances.
Simon Swanson of ClearView says people who approach insurance companies themselves, without any advice, risk being sold cover that is not as comprehensive as the cover offered by financial advisers.
“People who buy direct insurance on the internet or through call centres often don’t understand all the issues involved. While it is a relative short process, it is not a great process as there is no advice,” Swanson says.
He argues that financial advisers can often access premiums for people that are comparable to those in group insurance and the cover is more comprehensive with fewer limitations.
“The trouble with group insurance is that it has nothing to do with your needs. It is just there,” he says. “It is a wild guess at what you need for your insurance … and you can’t get trauma insurance through your superannuation.”
Swanson says people who have group insurance in their employer superannuation also need to check what happens if they change jobs or leave the employer.
“My advice is to go and see a financial adviser and make sure that your insurance is related to your needs,” he says.