Underinsurance is a major problem facing Australians today. As an insurance broker, it is vital that you ensure your clients are properly protected and are not risking loss by underinsuring their property, working capacity and lives.

According to a study commissioned by Axa Insurance , only 22 per cent of Australians have any life insurance cover. And for those that do have life insurance, they are on average, underinsured to the tune of 70 per cent, or in dollar terms $468,645. With this level of underinsurance, the life insured cannot be guaranteed that his or her family will be financially secure in the event of their death. In fact with this level of underinsurance, there is no guarantee that the family will even be able to keep the family home. This rings especially true for younger families with large mortgages and other financial commitments. The effects of underinsurance can prove devastating for surviving family members. This level of underinsurance provides an outstanding opportunity to insurance brokers to ensure that your clients are adequately covered in the event of death of a family member, particularly if the family relies on one breadwinner.

Life insurance however is not the only type of cover where Australians remain dangerously underinsured. The study also showed that a paltry 6 per cent of Australians have income protection insurance and the 6 per cent that do only have income protection for around 24 per cent of their total insurable income. With this level of income protection cover, it is hard to see how the average Australian with some level of income protection will have enough to ensure the security of their family and to be able to afford to live, let alone receive any required medical attention, while they are unable to work. Income protection, like life insurance is vital in this time of high levels of mortgages and other debt.

Another alarming study, commissioned by the Investment and Financial Services Association (ISFA) found that middle Australia was underinsured by $1.3 billion. And this study only looked at life cover underinsurance!

One of the problems may be fewer advisers selling risk products. According to Marc Fabris, Zurich strategic marketing manager life and risk, “Back in 1990, there were about 16,000 advisers selling risk products. The picture in 2004 was one of dramatic change with only 2,000 advisers purely selling risk products. There were 16,000 financial planners and, of those, between 4,000 and 5,000 sold some risk products, generally in small amounts.”

Another reason why there is such a high level of underinsurance in Australia is an apparent apathy towards insurance and a general misunderstanding of how insurance works and the reasons as to why it is vital.

This apathy towards life insurance no doubt extends to other forms of insurance including home and contents and business insurance.

As an insurance broker, it is important that you ensure all your clients are adequately covered not only through life and disability insurance, but for trauma insurance and salary continuation, or income protection, as well. The next time you review your clients’ policies, double check to make sure that they have enough cover.

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Bushfires represent one of the greatest natural threats to life and property in Australia. And with many Australians living in areas that are prone to bushfires, it’s important that your clients are properly prepared.

Bushfires can represent a threat not only to those living in rural and regional areas but to many living in city and suburban areas as well. The 1994 Sydney bushfires and the 2003 Canberra fires brought this fact home in a devastating way. It’s vitally important for your clients who live in bushfire prone areas to be properly prepared for any impending bushfire threat.

Firstly, it’s important that families living in threat areas have an emergency plan in place. This should include an evacuation plan as well as what to do in the lead up to any possible fire. Families should decide well in advance whether they are going to stay and fight the fire or whether they are going to leave well in advance of the fire’s approach. This is a decision that should not be left to the last minute, as often this is too late. Many people have perished in bushfires because they have left this vital decision to the last minute. Also, any evacuation plan should include a rendezvous point following any evacuation.

Naturally, during the summer months, gutters should always be kept clear of leaves and other natural litter. This also applies to other areas of the yard. Dry leaves, such as gum leaves are highly combustible and can spread fires quickly if they are set off by falling embers. Also, every household should have an emergency bushfire kit which should include a long sleeve cotton shirt and a pair of long cotton pants for anyone intending to fight the fire. Equipment to fight the fire, such as blankets, buckets and a first aid kit should also be kept in the kit. These should be stored in an easily accessible location.

Adequate insurance cover
Equally important is ensuring that the family home and contents are adequately insured against the threat of bushfires. Always ensure your clients’ home and contents insurance is up to date and includes any new additions or renovations that have been carried out in the past 12 months. It may be a good idea to convince your clients to obtain a professional valuation on their property to ensure that they are not underinsured. If the house is completely destroyed by fire, at least they will be able to rebuild with the right amount of insurance cover.

Adequately updating home contents insurance is another trap that can have a devastating effect on families who have lost everything from bushfire. Ensure your clients take into account any gifts they have received during the year as well as items that have been bought such as furniture, electronic equipment and jewellery. It is rare that we do not accumulate new and valuable items during any one year.

By making sure your clients are properly insured against the threat of bushfire, and ensuring they know what to do in order to keep their families safe, you will be providing a valuable service.

As an insurance broker, at some stage you are going to have to deal with a client who has suffered an important loss in their life. It may be the loss of their spouse or a child or other loved one. In this time of loss, it’s important to treat your client with compassion and understanding. Here we provide some insights and tips that will assist you to help your client get through a very difficult time.

Firstly, it’s important to understand the stages that anyone will go through when they suffer the loss of a loved one. Some of the emotions a client is likely to feel following the loss of a loved one will usually include:

• denial
• confusion
• shock
• sadness
• disbelief
• anger
• despair, and
• guilt.

Everyone will cope with their loss in a different way. For some, the mourning period could take months, while for others it could take years. 

When dealing with someone who has suffered the loss of a loved one, remember that these emotions will be normal. In fact, they are healthy feelings to have when in mourning. If, for example, a client easily becomes angry with you or other members of your staff, show understanding. And remember, they are not angry at you, even though their anger may be directed towards you. The period after a loss will usually be a period when your client is going to need to feel that they can rely on you. You’ll probably be involved in helping them with any life insurance claims and to reorganise other aspects of their financial affairs. They may easily become frustrated during this time and this could lead to feelings of anger.

When communicating with someone who is grieving:

• act naturally
• don’t feel you have to say something for the sake of saying something
• show genuine concern
• show them you are there for them and you are prepared to sit and listen
• talk openly and directly about the person who died (especially if they were a close client).

If the client has suffered the loss of the main breadwinner, they will most likely also display feelings of anxiety due to financial concerns. Reassure your client that you are doing everything that you can to help them get their claim processed with a minimum of fuss. Spend extra time in preparing the life insurance claim and ensuring all relevant documents, such as death certificate etc, are lodged promptly with the claim. Have someone from your office ring up regularly to reassure your grieving client that their claim is proceeding and keep them up to date on any developments.   

One important thing to remember is that as an insurance broker, you need to be patient with any clients who are grieving following the loss of a loved one. The more you can do to ease their suffering and anxiety during this difficult time will help you build better long term relationships with your clients.

Australia has always been subjected to the onslaught of the elements. Droughts, floods, cyclones and fire have all left their tragic mark on the Australian landscape and the Australian insurance industry. Here we look at the cost of some of Australia’s worst natural disasters.

Cyclones have always been a part of the Northern Australian landscape, but it wasn’t until Cyclone Tracy struck on Christmas Eve 1974 that Australians from all over the country realised the true destructive force of the cyclone. By the time it had wreaked its havoc with its 250 km/h winds, Cyclone Tracy had left 65 people dead, more than 500 injured, 125,000 homeless and a damage bill of up to $800 million (in 1974 dollar terms) .

More recently, Cyclone Larry belted the North Queensland coast around the Innisfail region south of Cairns, flattening houses and schools, pubs and other community buildings. Estimates for the damage caused by Cyclone Larry exceed $1.5 billion. Unfortunately for local farmers, their crops were not insured as the insurance premiums required by the insurance companies to cover the risk were that high that they became unviable. This led to huge losses being suffered by uninsured farmers, especially those in the banana industry.

Floods have also caused millions of dollars in damage in Australia and cost many people their lives. The Brisbane floods of 1974 swamped the city centre and 17 suburbs leaving 16 people dead, 300 injured and 8,000 homeless. The damage bill for the Brisbane area was $980 million.

In 1990, flooding swamped outback areas of Queensland, New South Wales and Victoria. The area affected by the flooding in New South Wales and Queensland alone was over 1 million square kilometres. The major regional areas affected by the flooding were Nyngan in New South Wales and Charleville in Queensland. When the flooding finally subsided, 7 people had died, 60 had been injured and 5,000 were left homeless. While the damage bill amounted to $415 million, most of the property damaged was uninsured.

Along with wind and flooding, the other extreme of nature, fire has caused great losses throughout our history.

On 2 February 1967, 110 separate fires, fuelled by a severe drought, burnt out over 250,000 hectares of Tasmania in around 5 hours. The fires killed 62 people and destroyed 1,400 homes and other buildings. Seven thousand people were left homeless. The total cost of the 1967 Tasmanian fires was $45 million (in 1967 dollar values) and $14 million in insurance losses.

The Ash Wednesday Fires of 16 February 1983 ripped through the tinder dry bushland of Victoria and South Australia during a 43 degree heatwave. Around 180 separate fires raged across both states, burning out more than 520,000 hectares. There were around 3,700 buildings lost including 1,000 farms. In all, 76 people were killed and 2,400 were left homeless. The Ash Wednesday Fires in Victoria caused over $200 million in property damage and destroyed around $50 million worth of timber in State Forests. The Ash Wednesday Fires also caused an additional $300 million worth of private property damage in South Australia.

The Canberra Bushfires of January 2003 raged across the ACT destroying houses, forests and killing four people. By the time the fires had been extinguished, 818 homes had been severely damaged or destroyed and the cost to insurers alone was in excess of $257 million.

The threat from natural disasters in Australia will only continue to increase, as more people move into cyclone prone areas of Northern Australia and continuing drought conditions means that the threats caused by bushfire will only continue to increase. These disasters provide a timely warning of the necessity for adequate insurance cover to reduce the risks of losing the family home.

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The insurance broking profession has experienced sweeping changes over the past decade, and this will be unlikely to end soon. While changes such as those affecting the financial services industry in recent years inevitably lead to resentment from some within the industry, and even providing the catalyst for some operators to leave it altogether, for those who embrace the changes, the results can be rewarding.

Reputations of the past – the salesman

For many years, insurance brokers were often seen as salesmen, flogging insurance policies to consumers and reaping the rewards of large commissions. The perception was that It didn’t matter whether the consumer needed that particular policy or not, if the insurance salesman received his or her fat commission, that’s all they were interested in.

Whether this was accurate or not didn’t really matter. That was the perception many consumers had of anyone selling insurance. Some high profile fraud cases didn’t help improve this perception either. Today, however, the tide is turning, thanks to much tighter regulation.

Rigorous regulations lead to improved perceptions

Tougher regulations may make it harder for some, but in the longer run will have a positive impact on the industry as a whole, and on how you will be regarded as an insurance broker. And while Australia has been at the forefront of introducing changes within the insurance industry, we are not alone. In fact, countries such as the UK and United States are following our lead in introducing tighter regulations on disclosure for example.

According to Noel Patterson, Chief Executive of NIBA, “while there’s certainly been some pain to get some gain, few would argue that insurance brokers in Australia are now part of the most effectively regulated market anywhere, allowing only those who have made a successful transition to the new regime to continue to operate.”

With the introduction of the Financial Services Reform Act (FSRA) the insurance broking industry is moving away from their previous emphasis on selling insurance policies to one more about providing professional advice on insurance.

For insurance brokers, this provides an opportunity to strengthen client relationships and reposition your brokerage as a more independent advice based business. As a result of the FSRA’s strict regulation in relation to product accreditation and disclosure, you can better position yourself as a service offering your clients more objective advice on the best type of insurance to suit their needs from the most appropriate provider, and at the best possible price.

By embracing the new regulatory environment and promoting your brokerage as a service offering impartial advice that is in the best interests of the client, you’ll only enhance your reputation and the perceptions of old will be gone forever. And while most insurance brokers can confidently say that they have always had their clients’ best interests at heart, the new regulatory environment that insurance brokers now operate within makes it much easier for the general consumer to accept this as the truth.

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Sourced from Heads up in the new age of broking by Noel Patterson, Chief Executive of NIBA.