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Compulsion and incentives can work together

Australia has had compulsory pensions for many years ago now, as a result of a brave set of politicians who understood the Australian pension problem and who made some tough decisions to fix them.

The Australian trade unions helped to launch their compulsory ‘superannuation’ funds. This proved popular with most Aussies as they trusted their trade unions to represent them properly and give them good guidance.
 
Some of the compulsory superannuation funds are massive now. In July 2009 the politicians made another bold change. The trade unions argued that people should have a basic level of life cover. Not mortgage or income related, just a basic sum which could help their family to bury them etc… this was added into the compulsory benefits package.

Australians usually get one unit of life cover from their compulsory contribution which gives them around £16,000 of cover.

Individuals can buy additional units of life cover if they wish to, but they have to pay for those themselves. IFA firms in Australia now target high net worth clients, who have savings and investment needs which are greater than those covered by the staff benefits packages they enjoy through their employer, and trade unions. Advisers have found a way of surviving and thriving alongside the compulsory system.
 
Income Protection is hugely popular in Australia too. For two reasons.
 
1.      You get tax relief on your premiums that you pay. And;

2.      Approx 55 per cent of Australians who do not have a staff benefits scheme in place (people like builders, self employed etc) have to have income protection BY LAW before they can start their job.

 
Large online advice firms exist in Australia dealing just with income protection sales.   There is a downside though. When you change jobs you may not need your policy any longer if a staff benefits scheme exists in your new job, so there is quite a bit of swapping providers and churn rates after a year are much higher.
 
The income protection model they operate is the one that makes my point best. They have both compulsion and incentives. It works… so why have we started a debate around which one of those is better? Why don’t we have a proper debate about our future which considers both options alongside others?

Arguing amongst ourselves and narrowing the debate won’t make us look good as an industry in the eyes of those we wish to try and persuade to do things differently.  Lets have a proper debate where we use examples to back up our arguments.
 
With the work that one or two insurers are delivering at present on protection advertising it’s important to take a look at the Australian protection providers too.

Some Australian protection providers issue hundreds of life, critical illness and income protection adverts, on TV and radio. They get the same TV space in Australia that PPI claim chasers and aggregator businesses get here in the UK with their advertising. We can definitely learn lots of important lessons from the Australian providers on promotional methods and best practice as well as compulsory pensions and protection.
 
I’m not saying I’m for or against compulsory protection. I’m not for or against incentives either. I’d just like to see us having an educated debate on both.
 
Andy Milburn is head of marketing at Aegeas Protect  

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