Small to Medium Enterprises

An understanding of the attitudes, behaviours and expectations of SMEs who have purchased life insurance through an adviser

Small to Medium Enterprises

An understanding of the attitudes, behaviours and expectations of SMEs who have purchased life insurance through an adviser

With so much change affecting the industry, it is an opportune time for advisers to make contact with their clients to review or explain their cover and advise if, or how, changes will impact them.

Talking points

With the spotlight on the practices of advisers, both inside and outside of large institutions, a pleasing consequence has been a growing understanding of products, particularly among SMEs

Compared to the 2018 research, SMEs with life insurance say they are better informed about their cover and more confident talking about it. This is likely because they are financially liable and closer to their business, making it necessary for them to pay close attention.

With so much change affecting the industry, it is an opportune time for advisers to make contact with their clients to review or explain their cover and advise if, or how, changes will impact them.

The price of advice

When taking out their most recent insurance, 62% of SMEs first worked out what cover they needed, then looked at what they needed to pay for it.

And when given a price range between $1,500 and $5,000 for an adviser to produce a comprehensive life insurance plan, like consumers, SMEs were more likely to commit to the lower end of the range. On average they were willing to pay $1,700.

What SMEs look at when taking out insurance cover

Total SMEs
Male
Female
18–34
35–49
50+

First worked out what cover they needed.
Then looked at how much they would need to pay.

Total SMEs

62%

Male

68%

Female

51%

18–34

44%

35–49

62%

50+

76%

First worked out what they could afford.
Then looked at how much cover this would pay for.

Total SMEs

38%

Male

32%

Female

49%

18–34

56%

35–49

38%

50+

24%

Perceptions of value

Advisers have an opportunity to demonstrate the value of their service to SME clients by spending more time with them upfront to ensure they fully understand the benefits and the quality of their insurance recommendation.

51% felt that buying life insurance through an adviser was more expensive than through a super fund and 43% think buying insurance through an adviser is more expensive than buying it directly themselves, while two in five SMEs perceive the quality of the insurance to be higher from an adviser.

Many SMEs pride themselves on being able to spot value and this trend manifests itself in their perceptions of financial advice.

This suggests advisers can do more to show their value and their holistic approach to insurance. Advisers should take the time not only to explain the products but to ensure clients understand the benefits that come with having a tailored policy and bespoke advice around insurance concerns.

There is more advisers can do to educate SME clients about the reasons for their recommendations in order to convince SMEs that tailored guidance on their insurance needs for their business is an investment that pays off.

Fees and commissions

SMEs also showed a preference for fees over commissions when it comes to paying for their insurance advice, but they were also more open to advisers taking commissions.

Like consumers, nearly 8 in 10 SMEs say they would be willing to pay an upfront fee if it meant lower premiums over the life of their policy. Yet more than a third of SMEs couldn’t recall what the commission their adviser took on their life insurance was.

One third (31%) of SMEs say they would feel no different towards an adviser knowing that they took a commission and 27% say knowing their adviser took a commission would actually make them trust their adviser more, compared with just 10% of consumers.

Interestingly if insurance commissions were removed, nearly 4 in 10 (38%) SMEs say this would make them more likely to see an adviser, compared to just 19% of consumers. 6 in 10 perceive that more Australians will be underinsured if removal of commissions occur.

It is perhaps not the fees or the commissions that are important to clients, but the explanation that accompanies them and whether the adviser is transparent about them.

If insurance commissions were removed, most SMEs don't expect this will have a significant impact on their willingness to see an adviser.

Knowing that an adviser receives a commission, rather than being paid an upfront fee impacts trust of the adviser in the following ways.

Less likely to trust the adviser

Feel no different towards the adviser

More likely to trust the adviser

Don't know how it impacts their trust of the adviser

Half of SMEs are considering leaving their adviser in the next 12 months, either to change to another adviser, or to cease the relationship completely.

Moving on

The main reasons cited are cost and trust issues, although a significant percentage (23%) of SMEs cite affiliation with a major bank as the reason for leaving.

This may reflect the often-fraught relationship small businesses can have with major banks and the need to show that you are operating in the best interests of SME clients.

At the very least, this should prompt advisers to contact their clients and have a frank conversation about their clients’ insurance needs.

Fewer than two-thirds of SMEs (63%) had a review with their adviser in the last 12 months. The benefits of a review are not just for the adviser, it helps SMEs better understand their changing needs and evolve their cover to ensure they remain protected.

Of those SMEs that undertook a review in the past 12 months, 55% changed their cover, with about half (49%) increasing their cover.

If looking for a new financial adviser, half of SMEs with life insurance would prefer to use an independent adviser, followed by one aligned to a larger network of other financial advisers.

This highlights the ongoing need for financial advisers, whatever their affiliation, to prove their worth and demonstrate their value.