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Promoted by ALI Group
While borrowers are flocking to the market for loans, the uncertainty in the market has many thinking about how they would service their loan if the worst happens. ALI Group CEO Huy Truong outlines why the group’s personal risk insurance, My Protection Plan, is helping ease the minds of borrowers and brokers alike.
What is My Protection Plan?
We used to call our products mortgage or loan protection products, but we were finding that customers were still getting confused as to whether the insurance was protecting them or the lender. With My Protection Plan, it is clear that it is covering the policyholder as a form of personal risk insurance.
Why would a borrower take this policy out?
The main reason to take it out is that if you were ever impacted by serious illness, accidental injury or, worst-case scenario, death, then you or your estate would receive a benefit payment to use in any way you or they see fit – whether that be to help with the mortgage, pay for out-of-pocket medical costs, living expenses or even to afford them time off from work so they can take care of the family if a spouse has passed away or is seriously ill.
The unfortunate reality of life is that, at various points in time, we all are likely to be impacted by some of these life events, and My Protection Plan is really a policy that helps provide financial relief if, and when, something does occur.
What void does this product fill?
There is significant underinsurance in Australia as evidenced by all the fundraising campaigns on Go Fund Me for cancer treatment, funerals and other critical life events. If more Australians took out personal risk insurance, the policy would assist to cover much of these costs.
One of the major reasons so many people do not have personal risk insurance is that insurance products are often overly complex, which then require a financial planner to advise on – all of which is time-consuming and expensive.
ALI’s My Protection Plan is all about having a policy that is simple to understand, convenient to access (part of loan process with no medical checkups) and affordable. It’s the “Toyota” of personal risk insurance rather than the “Mercedes”.
Does it cover COVID-19?
There are no exclusions specifically for COVID-19.
I think COVID-19 has made brokers – and everyone, really – realise the frailties of life. For two or three decades now, we’ve been living with a fairly blessed environment, relatively uninterrupted from a global event. Then, all of a sudden, the pandemic comes along and everyone recalibrated and realised that life’s uncertainties are all too real.
We saw that, over the four-month period March-June, our sales increased by about 30 per cent.
Who are your typical My Protection Plan clients?
Our policyholders are Australian citizens who are mainly between the ages of 18 and 40. They tend to be active, healthy individuals who are now contemplating a change in life – whether it be starting a family, getting married or becoming more “responsible”. Purchasing a home is often the outcome of these life events.
Research from Deloitte about the US personal risk insurance market and ASIC on the Australian personal risk insurance market confirm our experience that: a) mortgages and life events are the major reasons why people buy insurance, and b) they need to be prompted by a trusted agent.
How much does it cost?
Our premiums average around $50 a month or just under $2 per day. The cost is significantly cheaper if you are younger. For example, a 35-year-old female nonsmoker with $300,000 of debt cover and $90,000 in trauma cover and accidental injury would pay about $45 a month under our policy.
How long does it take to get this up and running for the client?
Typically, we put policies in place within 24 hours. Our best practice is within an hour. As the policy is tied to the person, and independent of the loan, the cover can start even before the loan is settled and it stays in place even if they switch lenders.
How can brokers weave this into their client conversations?
Brokers often say they aren’t an insurance salesperson and don’t know how to have the conversation. But our response has always been: “You don’t need to be an insurance salesman, and we’re not asking you to be.”
The reason why we’ve designed this product and the process is that it actually enhances the loan discussion and loan process naturally.
A core step in every loan process is a discussion about loan serviceability, which is typically based on income (either an individual’s or a couple’s).
Brokers just need to ask: “What would happen if one of you couldn’t work for a period of time? How would you make the repayments to service the loan?”
Many clients will realise they don’t have a plan. So, the broker can provide details of My Protection Plan and a quote and let the borrower think about it while the loan is submitted. Once the loan is approved, they can ask for a decision on the insurance.
The same research from Deloitte and ASIC actually confirm that mortgages and life events are the leading triggers for personal risk insurance, but both research papers highlight the importance of having an agent prompt them.
Bottomline is that asking this question not only fits the loan process like a glove, it’s actually an important question to ask from a client care perspective.
What kind of qualifications do you need for this product (do you need to upskill)?
You do not need to become a qualified financial adviser and provide a statement of advice to offer this product.
You will need to be authorised under our Australian financial services licence. In the same way that you may be using an aggregator’s credit licence, you can use our financial services licence. The only formal training is a 30-minute online training session on product and process and annual compliance reviews with an ALI BDM.
One of the reasons that a broker can offer our product without personal advice is because all they’re saying is: “Why don’t I provide you with a quote to this product that I have access to?” It is all done in a general advice manner. If the client wants to seek out specific personal advice, they can always go see a planner.
While the policy is lodged by the broker in a few minutes, all of the administration effort, compliance reviews, policyholder communication, claims processing and policy updates is on us, not the broker.
How is the broker paid?
We pay a broker commission calculated on the policy premium via a few different models. We have a hybrid model where we pay 50 per cent upfront and 10 per cent of ongoing trail. Further to these, we have another model that pays a level 17.5 per cent ongoing.
And we are considering a third model because we recognise that some brokers are facing a cash crunch with COVID-19, particularly new brokers who are entering the industry. We are working on a new model where we pay all commission associated with that policy in the first three years at a higher rate so that it helps out with their cash flow.
If a typical policy covering joint borrowers stayed in place for over three or four years, that policy would earn the broker about $1,500-$1,600 dollars in commission, which is significant for a few minutes of effort in demonstrating client care. They already have the customer there, they are already having a conversation with them about the loan and, if done in the right way, offering this solution actually reinforces customer care. We have a number of brokers who say to us that having this discussion often deepens the relationship with the client and leads to more referrals.
To find out more about My Protection Plan and how you can become accredited, visit:
www.aligroup.com.au/mortgage-brokers/become-authorised
Huy Truong
CEO
ALI Group
