2018 Insurance Round Table Discussion: Life Insurance Reinvented (Part 2)

AFRM Claims Advocacy (ACA) was invited to participate in an industry round table discussion, with the theme of Life Insurance Reinvented.

The panel included:

Ryan Watson: CEO, Tribeca Financial
Russell Hannah: General Manager – Retail Insurance Distribution, MLC Life Insurance
Peter Sobels: Publisher, Riskinfo
Phil Anderson: General Manager Policy and Professionalism, Association of Financial Advice
David Spiteri: Life Insurance Specialist, Technical Support, Centrepoint Alliance
Sean McCormack: Chief Retail Insurance Officer, MLC Life Insurance
Peter Stathis: National Sales Specialist – IOOF Insurance Solutions
Bruno Muraca: CEO AFRM Claims Advocacy

The key talking points included:

How do Life Insurers stay relevant in a fast-changing industry?
How are advisers adjusting in the Life Insurance Framework transition period and how important is the need for greater business efficiencies within this context?
The need for innovation within life insurance businesses: – life companies, licensees, advice practices. Can innovation help ‘reinvent’ the Australian life insurance proposition?
Will new minimum adviser education and training standards help serve to reinvent the nature of life insurance advice and rebuild consumer trust?

Issue 2: How are advisers adjusting in the Life Insurance Framework transition period and how important is the need for greater business efficiencies within this context?

Ryan talked to the panel about his firm’s constant quest for innovation and how this ties into remuneration changes being implemented by the Life Insurance Framework reforms: “We’ve always sought outside advice [for our business] and we’ve always been someone that’s pretty innovative,” said Ryan, who added the life insurance industry hasn’t historically been at the forefront of innovation and change “…so something was going to happen [ie the LIF reforms],” he said.

Ryan also made a great observation about control. While Tribeca has a core policy of innovation, this is in relation to those aspects of his business that are within his and his colleagues’ control. He noted there were a lot of industry issues that were outside of his firm’s control, and that this was where they support the two main adviser associations: “We’re AFA members. We’re FPA members. So, we’ve got the industry associations that are fighting for us at that level,” he said.

In terms of how advisers are adjusting to the Life Insurance Framework within Tribeca, Ryan said: “…for us as a business, it doesn’t have any internal dialogue at all… It’s not a concern. It’s not a query for us.” He said his team consider their services from a value perspective: “…that opportunity to continue to demonstrate value – when people see value, they pay the premium or the fee. So, that’s our challenge every day and that’s what we get up [every day] to do.”

Ryan sees plenty of upside for the advice sector and for advice businesses, notwithstanding the LIF reforms and the Banking Royal Commission – not in competing against other advisers, but because of the wider opportunities.

Ryan has also been in touch, however, with many other advisers and businesses who don’t hold such an optimistic outlook for their businesses, and who are contemplating an exit from the sector. Referring to his conversations with peers at a recent industry function, Ryan said he experienced “…pretty negative sentiment.” He said he sensed some advisers and advice businesses weren’t facing-up to, or addressing, the challenges they were confronting, whether those challenges related to the LIF reforms or minimum education standards etc, which he said he found “…really surprising.”

Phil Anderson continued the conversation, reflecting that Ryan’s present optimism for Tribeca’s (and the industry’s) future wasn’t shared by the majority of advisers and advice businesses: While he was encouraged by some product manufacturers “…doing their best” to ensure no premium increases for new policy holders in year two, he commented, “But if it does happen and people choose to discontinue their policy and the adviser cops a 60 percent clawback, that is going to really start to hit people.” Phil suggested this financial impost may cause advisers to ask themselves why they would continue to operate in such commercial/financial circumstances.

Fees V Commissions…?

While there hasn’t been a significant impact to date, Phil told the panel that he senses the mood of the market is not as strong as he would like to see: “I think broadly across the market, volumes are down,” he said, adding, “That may be because people are focusing more on retention.”

In addition to a renewed focus on retention, though, Phil is seeing evidence that some advisers are increasingly bringing fees into at least segments of their risk advice process.

While this incremental increase in the use of fees in risk advice is seen as a positive step, Phil gave it some perspective in saying, “…but they’re only ever charging a fraction of the initial cost [of onboarding a new client]. It’s one of the things we need to actually sell to the Royal Commission – around the value of commission for advice.” Phil continued, “Some clients go the whole way through the process and they don’t end up with insurance. In large part, they don’t pay unless it’s a small upfront fee. We’ve got to be able to sell this as one of the things that actually works in this model we have at the moment.”

Efficiencies, Ease of Doing Business and Survival

Russell stressed that what also needs to be recognised in tandem with creating greater efficiencies in advice businesses and the end-to-end insurance process is the critical importance of making that experience not just more efficient for the manufacturer and adviser but also the client “…by ensuring the experience for those that are participating in it is far more seamless and engaging.”

Ryan weighed in with his view on one initiative that could form a part of that solution, namely a focus on pre-underwriting, and in teaching newer advisers how to achieve a one-pager profile on prospective clients and use that information to build relationships with their underwriters.

Peter said he helps educate advisers within his networks about the value inherent in pre-underwriting for the adviser, the licensee, the client and the insurer, but told his peers it was amazing how many times he needed to reinforce its value before advisers embraced its value.

This led Peter to reflect on a vital point: “…where there is enormous change …it’s not going to be the survival of the fittest but those who adapt the best [will survive]. And there’s clear evidence of that with Ryan’s business and other businesses that we work with.”

One critical issue for Peter in terms of finding greater efficiencies across the sector relates to data feeds: “…if we could just do one thing to help advisers be more efficient it is to go to one system – get rid of the legacy – and importantly data feed live on an industry standard.

The industry standard was important for Peter, who added that his own licensee networks don’t accept insurance data feeds because the process is too difficult due to a lack of consistency between insurers. Peter’s message: get life companies to liaise with each other to deliver consistent data feeds to licensees and advice businesses.

get life companies to liaise with each other to deliver consistent data feeds.

Efficiencies could also be potentially gained from outsourcing the claims process, commented Bruno, having experienced the growth of his own business in servicing advice practices in this area: “We see business coming to us because the cost-to-serve at the back end – at the claim space end.” He said some advice businesses were paying additional staff costs to provide that service and those costs, for some advice businesses, according to Bruno, can become prohibitive. “So, they’re looking at efficiencies from that aspect.” Taking up Peter’s earlier point, Bruno agreed: “I think the practices who adapt are the ones who are going to get through this.”

From the product manufacturer perspective, Sean summed up this part of the Round Table conversation:

I’m really heartened to hear Ryan’s voice of optimism, and I really like what you said, Ryan. Smart, brave and facing up to the challenge, because that’s what we have to do as an industry.”

Sean added he was encouraged by the conversation “…because a lot of our investment over the course of the last two years, while we do some work around combining policy admin. systems, has been on making it more efficient for advisers at the front end with digital underwriting and pre-assessment tools. We’ve invested in the claims back end [and] we’ve invested in our group insurance proposition through digital.”

What’s Next – Greater Flexibility…?

In accepting the industry was generally falling short in meeting modern consumer expectations, Sean articulated one way in which MLC Life Insurance is seeking to address this and to remove the friction in the life insurance process: “Our next frontier that we’re looking at is the ability for customers to move through advice, to move between off-sale to on-sale products, without having to … go through a manual process where you’ve got to be passed through six departments to get a quote, to be underwritten, and then to be then fulfilled. We actually think we can do that digitally, and we think that then makes us more contemporary on an ongoing basis for customers and advisers, and this takes away a big pain point at the moment, which we hear about a lot, about how to make that process far more frictionless.

Taking this type of flexibility and combining it with new digital capabilities, Sean agreed this would benefit all: “…a win-win, right? Because it takes cost out of advice practices. It takes cost out of our business, and there’s a huge customer benefit as well.”

Issue 3: Can innovation help ‘reinvent’ the Australian life insurance proposition?

In the context of the life sector needing to reinvent itself in an evolving world in order to remain relevant, Russell called it as he saw it: “…we need to confront some of the things that we’ve spoken about in terms of being traditional hardwired arrangements and processes and the way that we’ve operated in every aspect of the value chain, and recognise it requires innovation. It requires progression if we are serious about wanting to remain relevant and have a place where we’re deemed to be one of value or importance to the end consumer.”

Phil added his own dose of reality to the prospect of the industry remaining relevant, in raising the issue of price:

“The feedback that I’m getting is that advisers aren’t looking for product feature innovation. What’s more important is getting premium increases under control, because that’s causing a lot of angst in the advisers’ office, working really hard to hold onto clients. And it’s not about adding features, it’s about making sure that the pricing remains under control, and this whole proposition about insurance being a long-term promise that is based upon long-term trust, means that progressive increases of premiums undermines all of that.”

In a different take on the industry reinventing itself, Peter raised the issue of the consumer-facing language the industry uses: “…my big mantra is please don’t lead an insurance conversation by using the word insurance. Start talking about contingencies, start talking about the financial exposure risk brings to you.”

Peter also supported Phil’s point about pricing solutions and ensuring advisers were able to deliver long-term pricing in future that would lead to greater client retention rates, while Ryan saw innovation in terms of life companies better educating younger advisers, particularly across the most basic tenets of the life insurance proposition and how to effectively develop the skills needed to enhance success in a sometimes tough client world.

While Ryan didn’t specifically refer to soft skills, David did. In lamenting the disappearance of a system that has historically provided a training ground for new entrants into the risk advice sector, David looked at reinventing the sector in three areas:

Innovate
Advocate
Regenerate

Looking Back to go Forward?

On the issue of regeneration, David asked “What’s going to happen to our training grounds? It used to be the insurers. Then it was the banks. What is it now? Is it us – the dealer groups that now try to regenerate sales and business?

David said there was a huge need to develop more soft skills amongst current and future advisers – to regenerate in this area.

Peter wholeheartedly agreed and said IOOF networks were investing heavily in building the soft skills of the advisers in its network while also looking at innovation and advocacy. Both David and Peter’s licensee networks are experiencing a reduction in life insurance new business, with the prospect of more downturn to come. Referring to the eventual 60/20 remuneration model under the Life Insurance framework reforms, David said, “…everyone’s in the same boat. All I can see is this going down even further. …The last 18 months I’ve been spending a lot of time with our network in diversification, because I don’t believe the 66/22 percent is going to provide you with [a sufficient] income.

Bruno advanced the point about price versus value when it comes to the innovation debate: “I think we’ve got to be really careful about price and value. I think they’re two separate equations… often when we innovate it could actually result in an increase in value,” he said – that is, if innovation leads to a more attractive life insurance solution for consumers, the consumer in turn will ascribe a higher value to the service being delivered and be prepared to pay an appropriate amount for that added value service.

Bruno also raised the issue of the need for better financial literacy among Australia’s younger population, which invoked David’s memory of the ‘piggy bank in schools’ campaigns in the 1960s, 70s and 80s, but which seem to have disappeared.

the big impact of FASEA will be very much on those people who are long term risk specialists

Sean added that when it comes to innovation, things need to be simplified for the consumer: “I would contend that most product propositions have reached the point where enough is enough, …and adding more and more to make it more complex is not heading in the right direction.”

The road to Innovation, then, when it comes to the life insurance sector, may well lie, at least to an extent, in the past:

Improving soft skills of practitioners
Enhancing financial literacy in the school-age population (eg reinvigorating ‘piggy bank’ programs)
Reverting to less complex, more simple product solutions

Interestingly, this conversation about innovation did not include the notion of technology-related service enhancements, but new and more efficient technologies could have a role to play in each of the areas that were raised by the panel.

Reality Check

Also of interest in the conversation about how innovation can help to reinvent the life insurance proposition in Australia is the fact that the panel’s discussions came back to the demise of the specialist risk adviser, rather than how innovation can play a role.

In response to a comment from David, Sean asked the panel its view on the challenge of where the next generation of risk adviser comes from. In other words, while innovation is critically important in any industry, the panel appeared to agree that there may be more important and immediate issues to address before embracing innovation paradigms.

To this issue, Phil raised the spectre of the potential impact of minimum adviser education standards soon to be implemented via FASEA. Phil told the panel that of the AFA members with over 20 years’ experience who are risk-focused advisers, 76 percent do not hold degrees or equivalent qualifications: “So, you look at where the big impact of FASEA will be, and it will be very much on those people who are long term risk specialists who are looking right now at their exit plans. And David’s point is absolutely right,” continued Phil: “Where do the new advisers come from? There are very few people sitting in those FASEA-approved degrees course right now. We’ll have a drought at one end. The taps turned off and we’ve pulled the plug out of the bottom of the sink. So, we’ve got to work really hard to hold onto as many of those existing advisers as we possibly can and help them get through the exam and to achieve degree equivalence to stay in the industry.”