Insuring the Ageing

2008 AFA Adviser of the Year and estate planning expert, Adam Smith, is calling on the life companies to walk the talk when it comes to product flexibility. In this article, Smith refers to the pressing need for life companies to bring their products into line with evolving demographic trends within Australian society. These evolving trends include the rise of blended families and especially the extended working lives of many baby-boomer Australians…

I’m constantly reminded on a weekly basis how far behind the insurance industry is with the rapidly changing ageing demographic in Australia. I have many clients well into their 60s and 70s who continue to work in some capacity and want to protect themselves if the worst should happen. Yet often these clients can’t qualify for insurance cover due to their age or are faced with prohibitively expensive premiums for income protection, death and trauma insurance.

I wonder whether this is a common thread across many advice practices or whether this is an issue more specific to my practice due to our estate planning offering.

Either way, it’s something insurers and reinsurers need to consider and look to modify or change their product offering to cater for changes to our ageing demographic, which is being led by the baby boomer generation.

Premium increases are certainly front of mind for many clients today, especially for mature-age insured lives. But there remains an underlying need for this protection and most discussions I have with my clients revolve around recognising this need and working out the best way to balance the the peace of mind insurance provides with the cost of doing so.

age 75 is the new 65

The good news is that while many ageing clients are often shocked by the substantial annual premium increases, when you have the opportunity to explain why and to reassess their need they’re more understanding and simply want a solution that will adequately protect them while lowering or at least retaining their current premium costs.

We recently sent an article to our clients on our Top 5 Cash Flow Strategies. It’s often better to acknowledge the ‘elephant in the room’ upfront when it comes to premium increases, rather than pretend clients are not thinking about it, as you can tend to lose clients that way!

In my experience age 75 is the new 65. For example, I have an 86-year-old barrister still practicing for six months of the year out of Hong Kong and he has no plans to retire!

Most clients (in particular white collar professionals) are working well beyond age 65 for the following reasons:

  • For many males in this demographic it forms part of who they are (i.e. their ego) and provides purpose for them. So the thought of stopping work is not an option. Rather, a gradual phase out is the preferred option.
  • Income. Many have the need to continue working, be it from GFC fallout, blended family issues or servicing debt and lifestyle needs. These mature-age Australians would therefore like the option to continue protecting a level of income.
  • Baby boomers, while typically wealthier, tend to have more debt, and often this debt extends well into their 60s.

Many Grandparents also play a vital role. Sometimes it involves guardianship roles for their grandchildren and ensuring that should something happen to them that there’s a lump sum available to provide for the financial needs of their grandchildren, which often incorporates schooling needs. So, providing some form of cover in these circumstances is often discussed during our estate planning meetings.

Superannuation rules in Australia are more in line with the ageing demographics than life insurance industry rules and thought needs to be given to how we can better offer insure to the ageing demographic – both affordably and profitably.

When I explain to clients that it’s not possible to insurer them for IP and Trauma, they look at me strangely and can’t conceive why they can’t access this cover when they’re prepared to pay for it.

Suggestions for income protection cover product flexibility, all designed to cater to a maturing insured life include:

  • Applying a maximum 50% income benefit.
  • Restricting the benefit period to either two or five years only.
  • Excluding mental illness and possibly other events in order to reduce cost.
  • Extending entry age to age 70.
  • Offering indemnity-only cover
  • Potentially offering a cancellable contract (although this is not ideal as lacks certainty).

There are also ‘ageing’ issues that emerge in the area of business succession. Problems can sometimes be created for business owners working beyond age 65 whereby their partners are covered, but their own cover ceases. This can create an inequity in the partnership relationship and issues could emerge should a claim event take place.

In terms of other ‘non-product’ strategies, I’m utilising a fee for service arrangement for some of my mature-age clients, to help lower their overall costs. At this stage, we’re experiencing a 30% take up for the fee option.

While we work hard to find ways to minimise costs for our own mature-age client base, the industry needs to focus on delivering a much more tailored approach to product solutions for this market segment in order to accommodate our changing society – for those who want to work longer and for those who must…

  • Jeremy Wright

    Adam, you have made some very valid points and this is a big issue that Life Insurers must address.

    It is a sad state of affairs when you have a willing demographic who understand the need for Insurance, are willing to pay and for many, have already been loyally paying for years, only to be forced to cancel due to crippling premium rises.

    People would accept a reducing level of cover in order to maintain their policies, though it has to be much more client friendly and clearly articulated, though client friendly, clearly articulated processes do not seem possible from Life Companies at this present time and it will take one Life Company to take the leap and get advice from real people with real experience working with and understanding clients thought processes and needs, then providing the vehicle that allows advisers to work with older clients in this area.

    Then and only then will the rest of the pack come across in their usual re-active way, only because they can see Business flowing to that innovative Life Company and they do not want to miss out.

    Older clients are a gold mine as they no longer have the massive financial and physically demanding struggles that younger people with families have.

    Older people are usually better able to afford more than younger families and yet the Life Industry prefers to walk away from a multi Billion Dollar opportunity, because they have not thought it out and lack innovative strategies to keep this huge market as clients.

    Instead, they drive them away. Where is the logic in that?

    • Old Risky

      Jeremy & Adam-its an interesting issue. I too am past 65 and still working, but my God my life insurance premiums are killing me as I still have some debt
      The life insurers , in showing a lack of leadership and innovation, are merely reflecting one of our countries largest issues – a lack of leadership at most levels in our life, particularly in politics
      I argue we are paying yet another price for the Governments who allowed banks to buy insurers because that changed the thinking of life offices, from long term thinkers, to short term profit centres, just like their masters. CBA for example still rotates middle range executives through Comminsure “for experience ”
      Banks primary business is lending. Their natural lending target generally ends around 50, so their interest in life insurance product innovation is minimal, if it targets over 60s still working. The banks would prefer to spend money building super portfolios at that age.
      Sadly the remaining seven non-bank life offices will copy, if not ape, the banks. After all they are all members of the one cabal – the FSC
      But we live in hope. TAL & MLC and ( soon ) Clearview are Japanese owned, and the Japanese operate in different markets, including Canada in TALs case. I hope I am still here when Long Term Care becomes available. Comminsure & One Path are up for sale, so there just might be light at the end of the tunnel if the banks abandon the orphaned Australian life insurance industry on the doorstep of overseas ownership, with a note in the basket.
      The banks have done a lot of damage to the Australian life insurance landscape, and LIF is just one example of that damage.