Targeted premium increases, a review of remuneration structures and a redesigned income protection product will form part of a comprehensive strategy to address the performance of AMP’s wealth protection business, the group has announced.
AMP made the pronouncement as part of its 2013 half yearly results presentation, during which the group also confirmed that AMP CEO, Craig Dunn, would step down at the end of the year.
Reporting on the group’s performance in the first half of 2013, AMP confirmed its insurance business earnings for 1H 13 were $64 million, a fall of $70 million, or 52%, on the same period in 2012. The fall in earnings was attributed to lower sales volumes and higher than expected claims and lapse losses of $33 million.
According to AMP’s figures, $24 million was paid out in claims during 1H 13, with the majority going to income protection ($11m), followed by retail lump sum ($7m) and group lump sum ($6m). A further $12 million was lost through policy lapses. The wealth manager said the loss of earnings was slightly better than originally predicted by the group in its recent earnings update, due to fewer claims in the month of June (see: AMP Reports $32M Insurance Loss).
Despite the poor wealth protection result, AMP’s 1H 13 results showed a 20% increase in earnings for the wealth management business overall.
Presenting the results, Mr Dunn said improving the performance of AMP’s wealth protection business would be a critical priority for the group over the coming years. At the heart of the strategy, he said, is a desire to improve income protection claims experience and reduce lapse rates.
Improving the performance of the insurance business is an area of critical focus…
“We believe we’ve got a very good understanding of what’s driving it (poor lapse and claims experience), and what we can do to improve it,” Mr Dunn said.
He explained that there were both cyclical and structural issues at play, including cost of living pressures and rising unemployment levels, as well as customers changing policies more frequently, which was impacting on traditional industry remuneration structures.
“Improving the performance of the insurance business is an area of critical focus as we introduce a series of actions to improve both customer retention and the management of claims, and which will deliver benefits to both customers and shareholders,” he said.
Among the more immediate actions to be undertaken by AMP are:
- Increases to claims and retention teams to improve customer engagement
- Repricing of income protection to improve value
- Tactical customer campaigns targeting new price options and value
… we need to review whether industry remuneration structures continue to remain relevant
In relation to the topical issue of ‘insurance churn’, Mr Dunn confirmed that AMP had conducted a review of adviser practices. He said that, as a result of the review, AMP had changed the terms under which it works with a small number of advisers (15), and had issued a further 16 advisers with a ‘final warning’.
Mr Dunn added that remuneration structures would also be reviewed over the medium term. “The fundamental change in customer behaviour means we need to review whether industry remuneration structures continue to remain relevant,” he said.
Over the longer term, AMP will also look to:
- Implement a new claims management platform
- Offer broader return-to-work and rehabilitation services
- Redesign its products to better meet the needs of customers
The announcement was accompanied by the news that Mr Dunn will step down from his role at the end of 2013, after 13 years with the company. Mr Dunn said the decision was not one which he had taken lightly, but that he had always been of the view that a five year tenure as CEO would be “about right”.
Mr Dunn’s replacement is Craig Meller, who is currently Managing Director of AMP Financial Services.
AMP Limited Chairman, Peter Mason, said Mr Meller’s appointment followed an extensive internal and external review, and was testament to the quality and rigour of AMP’s approach to succession planning.
“Craig Meller has demonstrated a great capacity to lead and grow the business since he joined AMP more than a decade ago. He has successfully led AMP’s largest business unit during a period of significant regulatory and industry change, while at the same time new technologies have been driving a major shift in customer behaviour,” Mr Mason said.
Mr Dunn will remain with the company to ensure a smooth transition before Mr Meller assumes the role from 1 January 2014.
