When it comes to protecting ourselves and our livelihoods, Australia has one of the lowest rates of adequate insurance among developed nations. In the UK, insurance comprises approximately 40 per cent of a broker’s revenue, but the World Insurance in 2015 report by Sigma revealed that total life premiums in Oceania contracted by 7.8 per cent that year.
This was particularly the case in Australia, where premium income fell by 8.1 per cent “due to volatility in investment-linked products and a poor performance of disability and income protection products”.
Spectrum Wealth Advisers’ CEO Mark Schroeder says he thinks that part of the problem is the happy-go-lucky attitude of many Australians.
He explains: “I think [Australians] think a little bit short term; the main thing is they just don't think it's ever going to happen to them.
“If you look at some of the not-so-wealthy countries in Europe, they have high penetration rates of life insurance. It's sort of in their culture. If they want to protect themselves, their family and assets, they’ve got to have life insurance. They’re kind of used to what it’s like when you can’t rely on the state to support you when things go wrong.”
Darren Cantor, the managing director of Mortgage Advice Bureau, echoes this view, adding that overall, Australia is a prosperous nation that hasn’t experienced a recession since 1991.
“Therefore, notwithstanding the challenges of the GFC, a significant portion of working Australians and families have not had to endure tough times and therefore not [been] exposed to the need for insurance,” he says.
Nicole Cannon of Pink Finance agrees, stating: “A lot of people have the belief that they are adequately covered, which 9.9 times out of 10 they’re not.”
Huy Truong of ALI Group suggests that another reason Australians are underinsured is because traditionally, buying life insurance hasn’t been easy.
“You need to know a financial adviser, or back in the old days, you needed to have a traditional life insurance salesman knock on your door and try to sell you a plan, sell you a policy. It's not something that's been readily available,” he says.
This is where brokers come in.
The opportunity More than any other channel outside of financial advisers, brokers are in a “wonderful” position to help remedy the issue of underinsurance in Australia, Mr Truong points out.
“We don’t wake up one day when we’re 18 or 19 and go: ‘Hey, you know I'm really excited about going out and buying my first life insurance policy’ and in the same way that we are going out and buying our first car or whatever the consumable, our first iPhone, or whatever it might be.
“Where insurance tends to occur is when something happens to our lives that makes us sit back and think. It actually often requires someone to have that conversation that forces you to reflect.
“Mortgage brokers are right there with their client at a really momentous occasion in their life involving financial risk, which is why they can really help address this underinsurance issue.”
Mr Truong also explains that overall, unaffordability is the most unlikely reason for house repossession and in fact the highest factors are injury, illness and the loss of employment.
“It’s the unexpected. You're off work for three months, or you have a serious illness or your partner has an illness and you'll take time off work; it’s those things that have a higher rate for housing repossessions than what people traditionally think. So, if you're going to put someone into a level of debt, you should think about insuring them.”
Alerting customers to the need to protect themselves and their assets is something that financial services executive Steve Weston says mortgage brokers should be doing.
“As finance experts, we know things can go wrong but our customers may not even consider the need for insurance,” he says.
“Given that brokers are experts in home loans, they should also know that at times things can go wrong in people’s lives, so it's an obligation for them to let customers know that they should consider protecting themselves from potential risks.”
Mr Weston emphasises that this doesn’t necessarily mean that brokers need to become life insurance writers themselves.
“What they should be doing is pointing out the risks to their customers, and — if they're not able to provide insurance themselves — at least refer them on to somebody who can help them,” he says.
“By helping customers with their insurance needs, we will not only be doing the right thing by them, we will also be building deeper and more meaningful relationships with them. And an outcome of that will be generating additional income for ourselves.”
The UK story
At The Adviser’s UK Study Tour 2016, which took place in October last year, brokers learned that in the UK, insurance comprises approximately 40 per cent of a broker’s revenue.
Mr Weston explains that one of the factors that initially contributed to UK brokers writing more protection insurance was that they get paid lower commissions on home loans and no trail.
“That's kind of how it started out, but it's moved way beyond that now,” he says.
“Even though they don’t have a legal obligation to talk to customers about life and general insurance, they are rightly concerned about the possibility of something going wrong in a customer’s life and them [not having] their home loan or income protected.”
Mr Weston says that during the UK study tour, brokers met with some of the most successful mortgage brokers in the country, who all spoke about protection insurance.
“All of them said it’s no longer optional,” he says. “As a minimum, if a customer said: ‘Look, I don't need insurance’, or ‘I don't want it’, [UK] brokers get the customer to sign an indemnity saying that their broker recommended that they consider their protection needs but they chose not to [do it].”
Not every customer that has a mortgage takes out life insurance, Mr Weston says, but in the case of UK brokerage Mortgage Advice Bureau, the firm has over 40 per cent of all their customers who purchase a home loan also sign up for advised life insurance.
“It’s not just what we call non-advised where it might just cover the mortgage,” he explains.
“[Advised life insurance] is where a life insurance adviser will sit down with a customer and look through all of their needs. It may be income protection, it may be death cover, it may be critical illness, and make sure that they provide the advice.
“Customers are not always in a position to take out all of that insurance; they might not be able to afford it, so they may take a lower level of cover, but at least they've had those discussions. So, the customer experience is a very good one. The customer is informed about things they may not have had an awareness about in the past.”
Mortgage Advice Bureau’s Mr Cantor adds that UK brokers do “a much better job in positioning the insurance need/gap as they’re asking questions and collecting the necessary information to advise on their mortgage”.
So, how can such a model work for Australian brokers?
Mr Cantor says there is no reason that the same can’t be done here, however “it requires a mindset shift from brokers, to be thinking of protection rather than focusing solely on the mortgage”.
According to Mr Weston, it comes down to Australian brokers taking on the responsibility to have the insurance conversation with their clients and including it as part of their customers’ journey.
“It doesn't mean for one second that the broker has to become a life insurance specialist. They may choose to establish partnerships with other firms. Aggregators may, like the Mortgage Advice Bureau has in the UK, establish their own life insurance businesses, and so brokers can refer their customers to those specialists.”
Indeed, Liberty’s subsidiary LFI Group has recently rebranded and recruited a new national sales manager, Kevin Arkell, to spread the word and enable more brokers to offer mortgage loan insurance
to their clients. Further, industry pioneer and Yellow Brick Road chairman Mark Bouris believes that as the broking industry evolves in Australia, there should come a point where a mortgage shouldn’t be sold to a client unless they sign a document saying they understand how mortgage protection works.
“Not just a conversation — they must sign off something before the loan settles. I actually think it should be legislated,” he says.
Types of insurance brokers can sell
Having worked as a mortgage broker as well as a financial planner for almost 18 years, Finance Made Easy director Tony Bice offers his customers a range of risk insurance products including life insurance, total and permanent disability, critical illness and incapacitation, as well as home and contents insurance.
“I got into that space because I could see that there was a natural fit between when a client takes out a mortgage and the benefits of making sure that they protect that mortgage.
“To me, risk insurance is a product that you sell in line with a mortgage. It's just a no-brainer,” Mr Bice tells The Adviser.
Pink Finance’s Ms Cannon also offers her clients income protection and insurance for trauma, disability, permanent disability and death.
Mr Weston adds: “There's also general insurance that covers your house or contents, or if you’re renting the property, landlord’s cover.”
The bottom line benefits
Ms Cannon says that since integrating insurance into her customer service proposition, she has found that her business has become more of a “global” service.
“We are not just doing home loans, refinancing and investment properties, we are doing everything now. We really are that one-stop shop and that just makes you become the finance go-to person for clients… it generates a conversation for clients to come back.”
Mr Cantor agrees, adding that first and foremost the benefit of offering insurance is helping to protect clients and provide them with a more holistic financial service.
“It positions [brokers] to act in a wider capacity as their trusted financial adviser instead of just being a mortgage broker,” he says.
Adding insurance to your offering is also beneficial from a financial perspective as it can boost a brokerage’s bottom line. Spectrum Wealth Advisers’ Mr
Schroeder points out that although it can take a bit of extra time and effort to integrate insurance into your proposition, it can ultimately financially bolster the overall capital value of your business.
“Most mortgage books bring in about one, maybe 1.2 times their income. So, if you're earning $100,000 a year, you can sell your book for $120,000.
“Because of the nature of the demand and the nature of the market yet to be serviced, insurance books are selling for almost four times… a mortgage broker can sell his $100,000 book for $120,000, and the insurance guy can sell his for $400,000.
“It's a massive, massive difference in terms of capital value of your business.”
How to have the insurance conversation
The best way to start talking to your clients about insurance is to introduce the topic early, as Mr Weston emphasises. “It has to start from the initial conversation. Make it very clear to customers what they can expect from you, and that will include not just covering their home loan needs, but also discussing their insurance needs.”
Finance Made Easy’s Mr Bice suggests framing it to customers in the following way: “I simply say to the client: ‘Look, this is an extremely important part of the process. I know it's exciting buying your first home but you’ve also got to make sure that you protect your home or you protect your income.’
“Then I bring up the benefits of a risk insurance plan to protect their family. If they’ve got kids, I hone in on the fact that they have small children and it's important that if anything happens to either of them that the surviving party doesn't lose the house.
“Most clients will appreciate the fact that you're having this conversation with them. It’s not that you’re trying to sell them steak knives or encyclopaedias but you're selling them an actual benefit that they haven't been aware of or have been aware of but just haven't continued with.”
Spectrum Wealth Advisers’ Mark Schroeder also recommends running through common client objections. “Articulate the need and then go through the barriers: Is it high cost? No. Is it tax deductible? Yes. Is it easy to implement? Yes. Should you think about having it? Yes. You can just take them through those three steps. They'll understand, they'll make their own informed decision as to whether they want to be insured or not, and very rarely they'll say no.”
The next step
When it comes to working out where to start when adding insurance to your offering, Mr Weston and Ms Cannon both agree that the next stage involves talking to your aggregator to find out what options they provide.
“Talk to your aggregator to understand what your options are. Some aggregators will have relationships with insurers,” Mr Weston says.
“Also, talk to brokers who do a good job of insurance, and most of them will be very happy to tell you what they do and how they incorporate insurance into their processes. They either do it themselves or refer it to somebody else. If you're going to start referring, you need to be very comfortable with the firm and the individuals that are going to be speaking to your customers.”
Insurance providers like ALI Group, Spectrum Wealth Advisers and LFI Group also offer ongoing support, training and resources for brokers looking to add insurance to their proposition.
LFI Group recently refreshed its brand and upgraded its website for brokers to easily direct customers to additional resources, should they want to learn more about the business and its products.
The company is also adding a number of state-based sales managers across the country, in order to provide brokers with an experienced team to go to for guidance.
Finally, ALI Group’s Mr Truong highlights the importance of getting educated around Australia’s insurance landscape.
“The next step is to understand why superannuation is inadequate and doesn't cover everyone, and the fact that not everyone will see a financial adviser. Therefore, there is a big gap in the middle that the broker is well-placed to address.”