Direct insurance major problem

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As of December 2012, direct life insurance constituted 12.0% of the overall risk insurance market.

Perhaps more worrying for the advice sector is that direct term, income protection and accident insurance business has grown more rapidly than traditional adviser sold and superannuation fund risk insurance in 2012. Higher lapse rates have also had less impact on the direct market than on the advice market.

Richard Weatherhead, principal and head of Life Insurance at Rice Warner, said the steep increase in direct products reflected “increasing consumer confidence in buying risk insurance direct, rather than with advice.”

However, according to our latest poll, 44% of readers think direct insurance is not good for consumers.

Rice Warner’s report points out that despite the recent risk insurance price increases by many industry superannuation funds, prices are still significantly lower than those for the equivalent direct life product.

However, last month, research from Plan for Life claimed that direct insurance premiums for life cover were on average 25% cheaper at entry age 30 and 60% cheaper at entry age 45. But the Rice Warner study showed the range of prices quoted for a woman aged 40 seeking $200,000 of life cover. The minimum annual premium was the same across both sectors, but the maximum premium for direct cover was more than double that of the life retail market, showing the broad range of prices in the direct market.

“Comparisons with adviser sold products can be misleading as adviser products include allowances for the cost of advice,” the Rice Warner report said.

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