One of the causes of Australia’s underinsurance is consumers wanting instant gratification, according to AMP Financial Services MD Craig Meller.

“We are pushing against human nature that wants instant gratification,” Mr Mellor told the Financial Services Council (FSC) Life Insurance Conference in Sydney last week.

“The reality is we are helping clients save for a rainy day and that message has to be delivered through good advice.”

He says the direct life insurance market is expected to grow 10-20% in the next couple of years.

“Closing this consumer perception gap will only be achieved by providing good quality advice through financial advisers, and the consumer must be able to afford that advice,” Mr Mellor said.

“So I think the central issue is affordability.”

He says AMP supports the retention of life insurance commissions, citing it as “critical” for dealing with underinsurance.

“Any change [to commissions] will increase the underinsurance gap,” he said.

“Commissions for life insurance are really a non-recourse loan covering the work the advisers do for the client.”

Speaking at the same session, Suncorp Life CEO Geoff Summerhayes said underinsurance is a constant challenge for the industry, with only 4% of families having cover.

“Underinsurance is estimated at $1.4 trillion in Australia, with the life insurance industry valued at $9 billion presently.

“According to FSC research, consumers find life insurance too complex and the insurers are reluctant to pay claims. But they trust their home and car insurers.”

Mr Summerhayes says more consistent terminology in documentation is needed and insurers should look at providing simpler products.

“At Suncorp we are strong believers in advice, but simplicity is the key.”

He says life insurance advisers also need to look at tackling the uninsured population, rather than just churning existing clients.

“The upcoming reforms are an opportunity to deal with churning,” he said.

“There is a figure of one in three life insurance clients being moved from one insurer to another.”

Mr Mellor says AMP is aware of some churning, but he argues it is only a few advisers who are doing it on a regular basis.

“Churning is done by a few advisers but we put them on level commissions,” he said. “That reduces churning to appropriate levels.”