Australia’s life insurers need to remove complexity if they are serious about reducing the underinsurance gap, according to the majority of speakers at this year’s Financial Services Council’s Life Insurance Conference.
There was a clear theme running through the presentations at the event, being that too few Australians had appropriate cover, and more innovation was needed to address the issue.
Opening the conference on behalf of FSC CEO, John Brogden, FSC Director of Policy & International Markets, Martin Codina, said the level of total and permanent disability underinsurance was “an extraordinary” $8 trillion across Australia.
“At the same time we know that Australians who receive financial advice are at least four times more likely to hold any life insurance cover and are more adequately insured, holding on average more than two and a half times the level of cover than those who do not receive advice,” he said.
While it was widely acknowledged by the event’s speakers that advisers play a crucial role in the delivery of insurance, questions were raised about the efficiency of the retail advice model, which accounts for the majority of insurance sales in Australia.
Former Managing Director of RGA Reinsurance, Pauline Blight-Johnston, said: “At the moment, the complex products with all these features do require advice. If we’re moving to a paradigm, in an extreme scenario, where that advice is reviewed every two years, and we’re paying 100% commission every two years, you can easily work out that the model doesn’t work.”
The complexity of the products was also cited as a risk towards overall industry sustainability (see: Insurance Sustainability Threatened by Product Enhancements).
“We need to look at the whole structure of what we’re doing, and how to make it simpler for the customer so we can get more efficient distribution, and make it more cost effective. We can talk a lot about how we remunerate distribution, but I think it’s only an issue because it actually costs so much for us to have that conversation with the customer,” Ms Blight-Johnston said.
Even intra-fund advice, provided to super fund members, was not viewed as a ‘silver bullet’ solution to the complexity issue.
If we’re fair dinkum about increasing insurance cover, we need to reduce the cost
“There is absolutely a place for insurance in the intra-fund advice model,” said Mercer’s Financial Advice Leader, Jo-Anne Bloch. “I think the challenge, however, is that insurance is a little bit more complicated than some of the other topics that tend to be included in the intra-fund advice framework.
“Insurance isn’t simple. There are categories inside categories, there are different underwriting limits, there are different arrangements in terms of conditions. So it has been a constant challenge for us in terms of bringing insurance into the simple super space, in order to give advice over the phone and to maximise the benefits of intra-fund advice.”
CommInsure Managing Director, Paul Rayson, suggested insurers needed to embrace technology in order to remove complexity and cost.
“If we’re fair dinkum about increasing insurance cover, we need to reduce the cost,” he said.
“We can use technology to improve the customer experience, lower the cost of issue, lower the cost of advice, and at the same time improve our risk selection. So there is a big case to invest more in technology and analytics, and I think we’re a long way behind.”
MLC’s Executive General Manager of Insurance, Duncan West, agreed, saying that the industry had so far failed to capitalise on new technologies and changing consumer behaviour.
“What we’ve done as an industry is try to digitalise the way we’ve done business for the last 125 years. We’ve taken our old business model, and we’ve tried to digitalise it. What we haven’t done as an industry, yet, is think about how we would create a new model in a digital world, around the consumer, and work backwards into how we design what we do behind the scenes,” Mr West said.
He said insurers should be looking for ways to keep the complexity away from consumers.
What we’ve done as an industry is try to digitalise the way we’ve done business for the last 125 years
“For me, the new way of doing business is to allow the consumer to build the product in the way that they want. And you predict what they might need, based on what you know about them. Instead of having a long set of 400 underwriting questions that they have to fill in, what we’re doing is using the information we know about them to predict what that tells us about the risk. So the complexity sits back in our algorithms. They don’t need to know about that.
“We can make the buying of insurance really simple, and really matched to their needs. At the moment we put all that complexity at the front end, and we’re boxed in at the back end,” he added.
The industry also needs to remove the complexity from client conversations, said MetLife’s CEO, Marc Lieberman.
“Life insurance is not something you bring up on the first date. We need to do a better job of explaining the positives of life insurance.
According to Mr Lieberman, the conversation with consumers needs to deliver a clear understanding of the product category, and how it can benefit families and individuals.
“We have to explain it (insurance) so that they understand it isn’t a lottery ticket.”
As these frank comments illustrate, Australia’s life insurers are well aware of the problems facing the industry. There are also a very large number of passionate individuals committed to increasing the amount of cover held by the general population. Advisers will no doubt be watching closely to see whether these two factors translate into action.
Interesting. This is exactly the same debate as we are having in the UK. Same issues, same problems, same proposals. Might be worth exchanging views about how we take things forward. In the UK, HM Treasury is sponsoring a ‘simple products’ initiative aimed at getting more people to save and protect. The first two simple products will be a simple savings plan and a simple life insurance policy – with standard T&Cs.
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