{"id":60955,"date":"2022-05-20T10:47:04","date_gmt":"2022-05-20T00:47:04","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=60955"},"modified":"2024-10-30T08:43:44","modified_gmt":"2024-10-29T22:43:44","slug":"pps-mutual-report-card-first-mover-advantage","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2022\/05\/20\/pps-mutual-report-card-first-mover-advantage\/","title":{"rendered":"PPS Mutual Report Card \u2013 First Mover Advantage?"},"content":{"rendered":"\n
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PPS Mutual offers a differentiated proposition in the Australian life insurance market due to its mutual status. Riskinfo asked PPS Mutual Australia\u2019s chief, Michael Pillemer, to reflect on how he sees the benefits of this status manifest itself for advisers and the consumers it serves…<\/h3>\n<\/div>\n<\/div>\n

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Core Principles<\/strong><\/p>\n

Insurers in Australia have moved away from their core principles, according to Pillemer, which he says means they\u2019ve moved away from doing what\u2019s in the best interests of consumers. He says this development has created an environment in which the regulatory interventions over the last decade or more have addressed what he believes to be the symptoms associated with failing to serve the best interests of the policy holder. \u201cIt hasn\u2019t been a big surprise for us to see this continued regulation,\u201d says Pillemer, adding:<\/p>\n

\u201cThese were the symptoms we identified when we set up the business and we saw the opportunity for a first mover advantage to set up a mutual, and we strongly differentiated ourselves on this basis,\u201d he says, adding that, ideally, there would be an opportunity for the industry to return to the past \u2013 that is to a mutual insurance model \u2013 \u201cBut that\u2019s not going to happen.\u201d<\/p>\n

Given self-regulation is off the table, however, Pillemer says it\u2019s important to get the balance right between sensible regulation and regulatory over-reach.<\/p>\n

Mutuality requires a different mindset, says Pillemer, and he wants to send this message to the adviser community: \u201cWe want to make sure that advisers who are recommending PPS Mutual understand mutuality, because it really does require a different mindset.\u201d By way of explaining what this means, Pillemer says \u201cWhen we need to make a decision, we always ask ourselves the question: \u2018Will this be in the member\u2019s best interests?\u2019\u201d<\/p>\n

Pillemer identifies three distinct behaviours associated with a mutual business model and a \u2018mutuality\u2019 approach to business:<\/p>\n

Behaviour 1: Serving Members\u2019 Interests<\/strong><\/p>\n

Genuinely serving members\u2019 best interests \u201c\u2026gives advisers and clients more certainty about how we\u2019re going to behave in response to the changing market dynamics,\u201d says Pillemer. For example, in terms of how he says PPS Mutual behaves differently, \u201c\u2026advisers tell us we\u2019re the only insurance company that they know of to pass back premium reductions to clients.\u201d He reminded Riskinfo that in 2021 the insurer passed back double digit premium reductions for Life and TPD cover to some of its existing members: \u201cThat\u2019s a perfect example of how we behave differently, because most insurers do the opposite. \u2026They discount fees for new members and charge higher fees for existing members.<\/p>\n

\u201cAs a mutual we focus on different principles – and that translates into different behaviours because of our values and our principles. So, advisers can have more certainty going forward into the future as to how we\u2019re going to behave.\u201d<\/p>\n

Behaviour 2: Premium Increases<\/strong><\/p>\n

Another example of differentiated behaviour, according to Pillemer, is how PPS Mutual spreads premium increases over three years to make them more palatable for advisers and their clients.<\/p>\n

\u201cWe don\u2019t know of any other insurers that have done this,\u201d he says (see: Adviser Thumbs-Up for PPS Mutual Premium Changes<\/a>).<\/p>\n

Behaviour 3: Profit Share<\/strong><\/p>\n

Pillemer points out that the profit share arrangement with PPS Mutual members is unique in the Australian market:<\/p>\n

\u201cSo, mutuality is a strong differentiator, \u2026and this translates into tangible benefits for our members,\u201d says Pillemer, pointing to the fact that there is now over $4 million in the PPS Mutual profit share pool \u201c\u2026and that profit share pool has been growing for each of the last five years.\u201d<\/p>\n

Member Equity<\/strong><\/p>\n

\u201cOne of our principles is equity between members,\u201d says Pillemer, explaining that the combined result of these and other behaviours associated with mutuality has been reflected in recognition of PPS Mutual in the most recent Plan For Life\/AFA Life Company of the Year Awards (click here<\/a> for more details). But more importantly, according to Pillemer, the insurer\u2019s \u2018mutuality behaviours\u2019 have been reflected in its low lapse rates. According to data released by NMG in its Risk Distribution Monitor Statistics, PPS Mutual experienced a retail advised lapse rate of 1.9% for the year to 31 December 2021, compared with the overall retail advised industry rate of 13.3%1 <\/sup>(see also: Stunning PPS Mutual Lapse Rate<\/a>).<\/p>\n

Given Pillemer\u2019s premise that client retention goes to the heart of sustainability, he offers this lapse rate outcome as proof positive that PPS Mutual is not just differentiating itself in principle but that it is also walking the talk. He contrasts this approach with other insurers who he says compete for and chase market share, which he says has resulted in a race to the bottom, which in turn has led to the industry lapse rates that currently exist, together with spiralling premium increases because insurers have moved away from the core principles of putting the members first.<\/p>\n

Member Growth<\/strong><\/p>\n

Another positive indicator for PPS Mutual in Australia is its strong growth in member numbers, from around 800 policy holder members in 2017 to over 4,300 at the start of 2021. By February this year, member numbers had increased to around 7,700, with PPS Mutual working towards achieving the 10,000 individual member milestone soon.<\/p>\n

Commenting on his ability to adopt a different approach to decision-making, Pillemer notes: \u201cOne of the things that attracted me to the mutual model was that you\u2019re not tied to the stock market. You\u2019re not worried about what your next annual return will look like.<\/p>\n

\u201cYou can really focus on a long-term strategy and on what\u2019s in your members\u2019 best interests,\u201d he says, adding that PPS\u2019s model has proven to be one of the most successful mutual insurance models in the world. \u201cIt\u2019s such a great story and easy to tell [and is] turning out to be a great journey for our whole team.\u201d<\/p>\n

In terms of adviser numbers, the PPS Mutual model had around 700 on its panel in 2021, including paraplanners, and this number has since grown to over 1,000. At the same time, however, Pillemer is keen to stress that the insurer holds more of a \u2018narrow and deep\u2019 strategy rather than maximising adviser numbers. He says they prefer to work with those advisers who operate in the \u2018professional\u2019 sector and are also prepared to take the time to understand the mutuality proposition and mindset.<\/p>\n

Regulatory Reform<\/strong><\/p>\n

Pillemer says PPS Mutual remains a strong supporter of continuing risk commissions under the Life Insurance Framework reform model, because he says this model removes any potential conflict in terms of product bias (ie same remuneration irrespective of product choice), \u201c\u2026and we think that consumers deserve to have a choice of how they pay for advice. There\u2019s not an issue any longer around conflicts.\u201d<\/p>\n

Looking ahead to the outcome of the Quality of Advice Review later this year, Pillemer believes past reforms have delivered unintended consequences, for example, around compliance requirements, which are very cumbersome, leading in turn to higher costs to deliver advice \u2013 for advisers and ultimately for clients.<\/p>\n

He says this cost increase has resulted in less access to advisers for consumers \u2013 not more access as intended by the various reforms \u2013 and has also led to declining levels of life insurance coverage: \u201cAnd I think the entire financial services industry is suffering from reform fatigue,\u201d says Pillemer, who adds that pausing consideration of the five-year maximum term for individual income protection insurance products was a positive development, allowing the industry to catch its breath (see: APRA\u2019s IP Contract Term Decision Welcomed<\/a>).<\/p>\n

One oversight in relation to the Quality of Advice Review, says Pillemer, is that \u201c\u2026it doesn\u2019t appear to be addressing other big issues around spiralling premiums and high lapse rates which are due in part to insurer market share chasing. It would be better if the review also addressed retention, sustainability and pricing.\u201d<\/p>\n

Pillemer would also like to see the review focus on what needs to be done to ensure a vibrant advice industry. He subscribes to the argument that advisers are key to consumers receiving high quality, accessible and affordable advice.<\/p>\n

Back to the Future<\/strong><\/p>\n

One of the ironies in reporting the progress of PPS Mutual in Australia in recent years has been the characterisation of the insurer as a \u2018first mover\u2019 in the sector. The irony lies in the insurer being the first to effectively \u2018move back\u2019 \u2013 to adopt a mutual life insurance company model which served Australians very well for over a hundred years. Only time will tell whether other organisations will follow this same path of returning to a mutual life insurance company structure which disappeared from the retail sector in Australia thirty years ago.<\/p>\n

1<\/sup>NMG Risk Distribution Monitor Statistics – Industry rate does not include NEOS Life\u2019s lapse rate<\/em><\/p>\n

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\"\"<\/a>Michael Pillemer is Chief Executive PPS Mutual<\/p>\n

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Back to Adviser Focus Main Page… <\/a><\/p>\n

 <\/p>\n\n","protected":false},"excerpt":{"rendered":"

PPS Mutual offers a differentiated proposition in the Australian life insurance market due to its mutual status. Riskinfo asked PPS Mutual Australia\u2019s chief, Michael Pillemer, to reflect on how he sees the benefits of this status manifest itself for advisers and the consumers it serves…<\/p>\n","protected":false},"author":3,"featured_media":60961,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6868,48,8],"tags":[],"class_list":["post-60955","post","type-post","status-publish","format-standard","has-post-thumbnail","category-adviserfocus","category-company-news","category-compliance-regulation"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/60955","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=60955"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/60955\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media\/60961"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=60955"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=60955"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=60955"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}