A new life insurance product structure designed by risk-focused licensee Synchron is receiving strong interest from insurers, the group has reported.
Following a recent fact-finding mission in the UK, undertaken by Synchron Director, Don Trapnell, and Independent Chair, Michael Harrison, the licensee decided to design its own product solution to address some of the issues facing the life insurance sector.
According to Mr Trapnell, most UK insurance policies are written on a level premium, set-term basis, a structure which is not used commonly in the Australian market. Synchron said it had designed a product structure along similar lines, and had put it out to tender to select life insurers.
Mr Trapnell said the initial interest from three insurance companies had been ‘excellent’, indicating strong interest in moving forward from design to costing phase. He added that another insurer had come forward asking to be involved in the initiative.
The industry is changing at break neck speed
“The structure we have designed provides the ability for the adviser to personalise the product to the specific needs of the client,” Mr Trapnell said.
“The product will have a number of level premiums and will be for a set term. Premium structures at first indication are comparable to current yearly renewable term rates and remuneration will be structured so there is flexibility to enable an adviser to mould the revenue to suit the effort required to secure the business.
“The industry is changing at break neck speed. While we are pleased by recent announcements from AMP and Centrepoint, there are other levers that need to be pulled and addressed. At Synchron we believe it is up to us to not just follow others, but to take on a leadership role. The product structure we have designed goes a long way towards doing just that,” he said.
Let’s see how many actually come through with the goods though. The insurers will have to recoup their costs (and try to make a profit) quicker and that will either translate into higher premiums or lower commission.
Well Shane, at least one dealer group is working on the seemingly unresolvable issue facing us all.
As always, the proof of the pudding is in the eating so we await the rollout and eventual outcome. Better to take action than to sit on ones’ hands or in other ways dither.
Is there an option to extend or convert benefits without evidence of medical health when the term expires?
Innovation in product design have been sadly lacking over many years now.
This is not for want of trying by some thinking and highly experienced advisers putting forward ideas to insurers only to be knocked back time after time.
Innovation doesn’t mean tweaking a Trauma definition to ensure your product achieves a higher rating from a research house. It means wholesale, strategic and clever thinking outside the square to first meet the changing needs of consumers and secondly to deliver a product to market that allows advisers to maintain a profitable business model and continuing client relationship and value proposition.
Congratulations must be forthcoming to Synchron for taking the initiative and lead in this space.
Well said Craig.
I worked in a research house for about 3 years and found that this is a really small but well protected market, there is no innovation at all for the last 3 years in terms of the risk product. Not sure what others think about the retail risk market, in my own opinion, all the life insurers are actually selling the same product, saying that there is only one product in the market, since they are all the same in the product structure but with different features. Any pricing changes or features updates does not mean a change of the product at all.
In terms of the pricing and structure of the existing risk products, I found the sustainability is really an issue and I expect that the lapse rate will increase due to the affordability. Stepped or Level Premium (in Australia it is not a true level premium…) are both not guaranteed, the insurers have the right to do re-pricing each year, this means all the future risk will transfer onto the policy holders, with increasing premiums.
Life style in Australia has changed, people may prefert to save more for their future, therefore a product with a true level premium for a set-term basis might be more suitable and affordable.
Worth looking at the experience in the US market where level premium fixed term business has proved problematic. For example, if the initial level premium was for 10 years say, then the increase in premium rates at the end of the 10 year period is enormous. Lapse rates at that 10 year mark in the US have been incredibly high as a result (averaging over 60% in some cases), and those that have not lapsed have had extremely poor claims experience – almost triple that expected. Google “us level premium fixed term lapse rates” and their is a link to a PDF report called “Report on the Lapse and Mortality Experience of Post-Level Premium Period Term Plans (2014)”.
This leadership and innovation makes me proud to be a (happy little) Synchronite!
I’d like to see insurers suspend all take-over terms.
I also find it astonishing that advisers can receive full upfront or hybrid new business commissions when they return a previous policy-holder to an insurer after it being off their books for only 12 months. There are sometimes legitimate reasons for this kind of change in such a short period, but I reckon most advisers would accept the current 33% level commission in those circumstances.
These two features combined make it easy to ‘churn’ and indeed sometimes even facilitate churn. Wouldn’t it be great to see insurers taking responsibility for encouraging churn themselves (rather than always blaming advisers) and doing away with these kinds of incentives/tools.
MLC came out with the level commission only rule on rewritten business. It would be interesting to see how actively it is policed.
It would be even more interesting seeing how much their new sales have dropped as a result of the business rule.
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