Insurers Urged to Grow the Pie

Insurers should be doing more to improve the attractiveness of insurance to non-insured customers, rather than on cannibalising business from competitors, a NSW adviser has asserted.

MDRT NSW Chair and risk specialist adviser, Ashley Pattinson, is calling on insurers to consider ways to increase the overall number of people seeking insurance and not just their share of the existing market. He said this would go a long way to addressing the industry’s sustainability issues, as well as take the focus away from clients who have a legitimate reason to switch between insurers.

In his submission to the Trowbridge Interim Report for the Life Insurance and Advice Working Group (LIAWG), Mr Pattinson said insurers, not just advisers, needed to shoulder the blame for the raft of issues currently being experienced. He said deep reform of insurer practises, guided by a forward looking Code of Conduct which at its core supports the expansion of the whole industry, should be a cornerstone of any recommendations put forward by the LIAWG.

“During both the changes brought about by FSR, and more recently FoFA, it has always been the insurers who have made poor behaviour possible. It is the insurers, and not the advisers, who offered:

• Take over terms for existing policies requiring little or no underwriting
• Bulk transfer bonuses
• Cash/travel incentives
• Interest free or low interest development loans.

“Rather than focusing their energy (and incentives) on winning new business from new clients (people who previously have not held personal insurances) the insurers encourage the cannibalisation of the existing pool of policy holders,” Mr Pattinson said.

…advisers are being blamed for simply responding to the numerous incentives the insurers provide

He explained that he was not seeking to excuse the behaviour of advisers who simply churn products for their own benefit, but noted that in many cases there was a legitimate reason for a client to change policies.

“In spite of their duty of care, advisers are being blamed for simply responding to the numerous incentives the insurers provide, which as I’ve mentioned is ultimately simply cannibalising the existing market, not actually growing the market size. Growing the market should be a priority for the Australian Government, as it reduces reliance on social security. It should also be a priority of all insurers, because as the old saying goes, ‘A rising tide lifts all boats’.”

Mr Pattinson recommended a Code of Conduct be established for Australia’s life insurers, to set out practices which address Australia’s underinsurance problem. This would, Mr Pattinson argued in his submission, drive the introduction of new products which make it possible for all Australians to purchase cover which is relative to the risk they represent. It would also lead to a reduction in activities which drive cannibalisation.

Other suggestions put forward by Mr Pattinson to improve insurer practices included:

• Better forward underwriting processes so clients could have future increases to cover pre-approved at initial application, encouraging clients to retain their policies
• True live data feeds to reduce adviser operating costs
• The introduction of online medical records, which could be accessed by all insurers
• Centralised tele-underwriting common to all insurers and/or consistent application forms to simplify the application process for the client and dramatically reduce insurers’ operating costs.

He also recommended the introduction of a ‘Quality Accreditation Scheme’ for advisers.

High quality advice does not come exclusively from individuals with degrees

“High quality advice does not come exclusively from individuals with degrees; it’s important that we draw this distinction.

“Whilst there are currently a number of industry awards for advisers, there isn’t a universally accepted ranking system based on the quality of advice. A ‘Quality’ rating, based on benchmarked ethical and well-structured strategic advice, could be used to rank advisers regardless of their affiliation or formal training. Naturally, to be of any value, these quality ratings should be applied nationally and awarded based on the results of a test which employs case studies (as opposed to a multiple choice exam). There would also need to be quality ratings for each segment of the industry, ie: risk, investment, superannuation, etc.

“A consumer could then have greater confidence in a ‘Quality Rated Adviser’, than an adviser with no rating, regardless of their affiliation,” Mr Pattinson said.