Industry participants at the roundtable: Tower head of offer strategy Brett Yardley (BY), CommInsure head of marketing Michael Browne (MB), Axa Australia head of individual life Stephen Rosengren (SR), Aviva national distribution development manager Russell Hannah (RH) and ING Australia head of insurance sales Kevin Goss (KG).
ID: Life insurance was probably one of the real winners to come out of the global financial crisis (GFC). Do you think the life insurance area will continue to provide a key growth segment for the financial planning industry?
KG: Obviously 2009 was very strong for us and there probably are several different reasons behind it, whether it be just risk awareness by the consumer or a lot of people talking about it or a lot of the financial planners getting started in the industry. But I think it is pretty hard to actually keep running at a growth level of 20 per cent.
MB: When the GFC hit it did change people and make them risk averse. People started to think less about accumulation and became a little bit more focused about protecting what they have now. I think some advisers did move back into the risk space. I'd hate to see them move away again just because it's no longer, you know, flavour of the month. We did a lot of training of those advisers to get them familiar with the process and it's almost embedded in now, and they'll more than likely continue to do this as part of their total advice proposition.
BY: I think that's the key aspect. People who moved into selling risk last year are now, I think, hopefully locked in and convinced it's not as complicated or as scary as they once thought it was.
The processes generally now are a lot simpler, which means it's easier for them to carry on writing life business, so we can keep them there.
I think it's probably unlikely that we'll get 20 per cent growth rate per year from hereon in, but, hey, reverting back to a more normal 10 per cent kind of growth rate is still a very attractive proposition.
RH: I think if we take a look at requests that are coming through, some at a dealership level, then go through the professional development content there still seems to be a quite a large demand and focus on risk-orientated topic and content.
So I think that's encouraging coming through to this point where there is still certainly an awareness at a dealership level of the ongoing education to embed some of those key learnings. And I think it's the demand we're seeing around new entrants who are looking to attend education and training workshops to upskill them and really embed risk as part of their overall advice offering [which] continues to remain really strong, so we're actually quite bullish that the markets are continuing in a positive direction.
MB: The use of platforms is also part of the solution. It's about the simplicity with which taking out cover can be done now.
SR: I think there's going to be a change in the market in terms of how our industry distributes products. I think there's going to be a good move in platforms and I think that's slowly being driven by the fact that you've got investment advisers who are comfortable using electronic capabilities because we've all got some type of offer on the table.
We've got all components now, which I don't think any of us had really to the same extent two years ago - a really capable front end that links into the technology that they use with quality products to which they can recommend with confidence to their clients. So I don't think we'll get the 20 per cent growth, but I think we'll see a shift in the channels in which we're getting our business from a stand-alone basis to a more retail basis. It won't be massive over time but it's slowly starting to increase.
BY: Yes, that's right. At the same time as the financial crisis I think all these other things have come together, which has actually improved the access to insurance so it's made it easier for people to sell, it's made it easier for people to buy, the processes are a lot better than they were five or 10 years ago.
So hopefully the people who come into the industry have seen this and recognised it's a very valuable revenue stream.
ID: Are you confident the lessons learned from the GFC will be remembered?
SR: I think we've changed our view of how we distribute our products, and I think what's been good over the last couple of years is while products are evolving, it's not a mad race to put, you know, another 55 benefits on. It's about the package and offer we put on the table. So I think we have changed our focus quite substantially, the investments that we've all made at front ends, the risk learning programs nearly everybody's got and even materials that we're putting out for clients and advisers, who I think are much more information rich than what we had before. So I think the challenge to us is to keep it going.
BY: The key point is I think the industry's probably stepped up its game after the last two or three years as well. You look back four or five years, and sure we all had decent products out in the marketplace, but it took a couple of months to actually get a policy on the goods. That's not a very good consumer experience. The whole industry has stepped forward over the last two or three years to set that solid foundation for the future, so we're making it easier for people, we're making it more relevant. We're finding ways of making it affordable for them, so we can keep that growth going. Traditionally, we haven't done a great job of promoting all the great stories and the great differences we've made to people's lives as a consequence of the products we sell. We sort of tend to forget about it, whereas if you look at the amount of money that's paid out and the stories that flick around those, it's pretty staggering.
IID: When you promote good news stories, is it positively received by the public?
MB: Insurance doesn't sort of feature high on people's priority lists, and the Lifewise program, you know, on behalf of the industry is probably the only serious attempt we've seen to get some sort of public awareness and change in behaviour around other insurance. But it's going to take time, and it'll need funding and support. But we do need to do more in that space, and I think changing it. And I think also embedding it into the younger generation through school and better, you know, sort of studies around finances and budgets and all those sort of things, getting it to the point where people, you know, automatically buy home insurance or for driving now, they think about the same consequences and, you know, ensure themselves the same time space. Try and embed that people understand what the risks are, and then making informed decisions. So it'll be a big task, but certainly we started down that road with Lifewise.
BY: But I mean I think you're tending to see some of it now just around TV advertising, you see daytime TV advertising, insurance is on there pretty much every five minutes, and it's a different sequence and a different time and different proposition. But what that does really show is how people respond to the need for life insurance and the potential benefits of life insurance. So we need to think about how to now take that a step further and how to continue to educate and educate this far. Obviously the success of those models show that people buy into it and people do believe in the need for it. It's always the issue of just overcoming that discretionary purchase barrier versus where else you spend the money basically.
RH: The education process needs to focus on the reprioritisation in the client's mind as to where their personal insurances sit alongside their general portfolio and their other commitments and the like. I think we're all becoming more aware, even within the broader community, around the fact that these life-altering events are, you know, occurring and happening on a far more regular basis. And I think one can continue to come back to the fact that they don't discriminate; that's probably the big thing trying to get across into the general consumer.
BY: It's about continually reinforcing that message. That's around the need to insure your most valuable asset, and that's yourself. We haven't yet quite gotten it through well enough to consumers, people insure their cars, they insure their contents, they insure their pets. In the UK I think I heard a stat that more people have pet insurance than they do life insurance.
SR: But I think that we're right to do it because we've built a lot of the framework there now. I don't think if we went out two or three years ago and tried to do it, I think we would have failed dismally.
It was too hard. I think our biggest challenge is we've got to change the perception that it's too hard, and we've made quantum leaps in the last two years. So I think if we went out three years ago and tried to do it, we would have probably failed spectacularly, because the level of service, delivery, everything else like that, the experience wasn't what we can give them today.
While we put ourselves down in claims sometimes and we don't get it right every single time, in terms of product manufacture, we're certainly looking when we design something to say, what's [the] experience going to be like at the back end now, rather than just putting a benefit out there. So the insurers have focused on that in trying to make sure the experience is better. While we haven't done a great job of getting the message out there, I think our problem as an industry is how do we get the message out there and how we do it collectively?
ID: A couple of you have mentioned the Lifewise program. What are your general impressions of that so far?
MB: Look, it's going to take years to change the public perception and behaviour . and it takes a lot of money too. If you look at some of the other campaigns that have changed people's thinking, for instance seatbelts, drink driving, those sort of programs, you're talking mainstream advertising and what we're dealing with is a very, at this stage, low-scale, very small-funded project that's predominantly online and just using unpaid channels to try and get a message out there.
They've done very well in harnessing supporters through various community groups and charities and things, so the people that are affected by some of the outcomes are people who were insured sufficiently. They've got some of the charitable groups and some of the medical cancer associations supporting it. But the next stage really does need to push it out to the masses and doing it online is probably the only way they can do it without serious funding.
However, life insurance must be made into a more topical issue so that people can make that decision. Really, I think it's a call of action for the industry to get serious.
ID: We've spoken about engaging new clients, but is retaining existing clients a focus as well?
SR: We've got 'discontingencies' across the industry, ranging between say 9 and 14 to 15 per cent or so and the same goes when you've got a large in-force book. I do think that we have a role and maybe some of the products are not designed appropriately to maximise people remaining on the books.
We have two premium schemes, for example, and depending on where your life cycle is and depending on the advice process and needs, they can both be difficult sell because when you're getting close to 50, on a step premium basis, it can be fairly costly as your age base increases.
We're about to release a new premium structure based on feedback from advisers who were finding it difficult to retain their customers. But the challenge to us is still getting advisers to go out and sell that product. I do think that we have a role and maybe some of the products are not designed appropriately to maximise people remaining on the books. In our business, for example, we have a product manager [whose job is] specifically about retaining the customer. Now that's our way of dealing with it; other organisations are bringing in a healthy lifestyle and best doctor. So I think again we're all doing our own thing slightly differently, but there's a lot of initiative to say how can we keep the customer on the book and how can we make them aware. But I still think we've got some way to go.
KG: I think the different types of premium structures are quite important, but at the end of the day it's about offering flexibility. Unfortunately as people get older the cost of their coverage goes up. So there's demand to scale down some of the products, to light versions or whatever, but we've also got to convince advisers that it's alright to sell those types of key products to keep cover in place. So I think everybody's looking at it from a different way at the moment.
RH: I think it depends upon how it's been positioned in the initial client engagement as to whether are we talking about a short-term solution or are we talking more about a medium to long-term solution, and playing into that, and trying to find a balance between the fact that there will be some short-term requirements that need to be addressed.
So I think that blending and a combination between both the premium structure and stepped level is certainly something we're starting to see a lot more of through the current model and obviously some enhancements that become available in the marketplace. Advisers are recognising that they need to be having a conversation with clients around both the short term, but also making sure they position something for that longer-term need as well, which remains affordable fundamentally. So the client's got cover when they need it most, because premium rates only spike as a reflection of the risk.
BY: Well I think it's about mainly providing, as I said before, flexibility so you're giving the client the option to take the types of cover they want, and that can be via your traditional offers or new reiterations of those offers, but also the flexibility to be able to modify the cover as their life circumstances change as well. So if they need to reduce their cover it makes it easy for them to do so. The challenge with the stepped level premium has always been you're trying to overcome two problems at the same time.
First of all we're actually trying to convince people, as we said before, with a need and value for insurance. Then once you've done that the first thing they think is: "How much am I going to have to spend?" And the stepped premium is cheaper from a consumer perspective, that's often the one that's chosen, but for just those reasons. But it also depends on the distribution channel and how it's sold. If it's sold through the adviser channel, then there are two steps to make sure it gets in with their behaviours or changing their behaviours. If it's sold through an alternative channel, well there tends to be more flexibility to actually choose something that's a little bit more innovative to the customer, because you have fewer sort of barriers to overcome if you like, but there's certainly opportunity to provide more flexibility.
MB: In a way it all sort of always comes back to the advice. If it's an insurance specialist, they're really just selling the cover and affordability, you know, and say "you're going to need X for the coming years". But if it's as part of that full financial plan, with affordability in front of it, it should be factored into the advice so they are able to demonstrate over time the sort of things we can do, which is cover or change this product the same way to maintain that base level all the way through for the period that you need it. So I think that's where we're sort of moving to now with more advisers starting to do that total picture.
BY: What I would say though, interestingly we recently looked at retention experience by age of a policy holder and, to be honest, the difference is not as marked as you might expect. It's not as though older ages had a massive drop off and younger ages it's not that far away. It's something reasonably uniform, which actually surprised me a little bit intuitively, but that's what we've seen.
ID: Do a lot of advisers and clients think that superannuation is a viable way to tie in life insurance?
MB: Yes and I think we're also seeing a bit of an increase in the interest in insurance through super.
If you're not paying insurance out the back pocket every week, it removes a lot of the issues in regards to affordability.
When that annual renewal bill comes in, clients can't help but question whether they pay it or whether to buy that new plasma TV or go on that holiday they've wanted to go on.
Paying for insurance via super contributions on the other hand becomes a bit of an out-of-sight, out-of-mind thing. Super account balances might slowly get eaten up by insurance, but at the same time if the markets are good, and contribution are going in, it's sort of off the radar. It helps peace of mind and doesn't have the ongoing issue of having to make those decisions or trade-offs.
BY: If you provide an alternative way to fund insurance, it might not be the best option for everyone, but it's an alternative, so it gives people that extra flexibility.
SR: I believe that insurance through super is here to stay. However, I also think that we have to make sure as an industry that it is easier for people to switch insurance out of super to non-super insurance products if they choose. There's an advice process that needs to be thought about. As an industry we are also looking at ways you can combine your coverage that means having some components inside super and other components outside of super and linking them, but at the same time making it more affordable as well.
So when we have clients say "listen, I don't really want my product in there" we can make sure yes they can continue cover, it's still tax deductible outside of super and they can move it out.
Looking back on the days when we allowed trauma cover to come under some super products, it was positive but we were hit a bit in terms of our quality with advice. So if we are going to go into some of these areas that are a bit controversial, depending on how the advice process goes, we need to make sure we've got avenues to manage that.
ID: If people do have that set-and-forget mentality when it comes to having insurance tied to super, is it possible that they might not know how much their insurance coverage is or whether the level of coverage is adequate?
MB: If it was part of the advice process, typically the adviser would stay in contact with the client and do regular reviews. So from the advice side it is unlikely it would be an issue. I think there is a danger, however, if they buy it through their employer or by default, as typically research shows, that people think they're covered for more than what they are.
MB: Average death payments I think are balanced at somewhere around $80,000, which isn't going to cover much when average debts are around $200,000. So obviously there's quite a lot of shortfall, which is the danger, but I think the industry funds are aware of that. They're starting to do more from the members' side in terms of the right advice to try and resolve that. It's just part of how they put the advice together and structure it. On the other side, clients do get consolidated reporting. Everything's there and it's an easy one-stop place to review details, exposure and protection rather than having multiple policies.
KG: The problem is what Michael just said, payouts are not very much. People think that either they don't have cover at all, or they do have cover and don't need it when in fact the level of cover is not enough. I think it'll take good-quality full-featured retail products and being able to bundle them in under the platform or in a master trust. They will have an adviser, all that information and other technologies made available to them, so they know exactly where they're at. So I think it's actually more of a positive than a curse.
ID: The FPA has come out and said that it would like to move to fee-for-service by 2012. For the time being insurance has sort of been pushed aside from that argument. What are your views on whether or not the industry could support two remuneration models?
KG: The traditional argument is whether the customer will still be provided with flexibility. Some customers would be quite happy to pay a fee-for-service, while others would prefer that the adviser receives a commission. I think as long as all information is disclosed, I don't think there's an issue. If you take commission totally out of the equation, I think everybody's going to get in trouble. Sales would probably fall, but more importantly the coverage would fall for a lot of Australians because a lot of people would have to pay out of their own pocket for insurance every week.
BY: Could both remuneration models operate at the same time? Yes, absolutely. Would it be a little more complicated than it is currently? Yes, but they can certainly co-exist. I think the key is giving customers the flexibility. I mean yes some may be happy to go down the fee-for-service route for insurance, but for others it simply won't be practical, so making sure we give people alternatives is very important.
MB: There's a concern fee-for-service will speed up rather than solve underinsurance as most people won't be able to afford the fees. Therefore it's in the consumers' best interests that insurance commissions remain where they are.
RH: I think flexibility and improving disclosure are both important as they allow consumers the control to select which model best suits their circumstances. I don't think the removal of commissions is going to lead to an increase in the number of people taking up insurance. We're probably more likely to see a decline because of the additional costs to the consumer.
ID: Very often we've heard the argument that it could be too difficult to remove commissions. Is that too difficult from the advice perspective or from your end?
BY: From a manufacturer perspective the mechanics of dealing with that kind of change wouldn't actually be that high. We already have products where you can dial down your remuneration to zero. It's basically just who that funding goes to and it's fairly easy to set up from a mechanical perspective. The bigger issue is customers will then question whether they want to be paying that much upfront for a risk product or risk product advice. A lot of them rightly or wrongly will decide that it isn't something they want to spend their money on, so in the end we'd just end up harming customers.
SR: Could we argue that the cost of the advice in a lot of cases could be more than the cost of the premium? So actually the consumer would be worse off.
MB: For a large portion, that's why it's better for clients to pay commission.
And commission on certain products being built into the premium is tax deductible today. We're only now talking about making financial advice tax deductible outside of the premium. So if I'm selling term and super or income protection insurance, the tax-deductible premium and the commissions will be built in.
RH: I recognise it's an upfront payment or initial payments, not just for the premiums but also to manage claim delivery as well from a number of advisers that will be actively involved in working with the insurer should a claim situation present. Now for a number of those advisers they won't necessarily charge a fee or bill the client, recognising that their initial payment was reflective of both those two steps, implementation but also the management at claim time, also as part of their service proposition to the client.
Again, if they're prepared to put an option to the client around an alternative and the client subscribes to that, well then that comes back to the consumer choice, but I think we should be mandating this. The other point I was going to make is that there could be a downside for more people to have it, especially in the event where it's actually going to be required and needed. So the longer-term benefit or result weighs against the downside of the plan.
KG: One of the other things to think about is if they abolish commissions, what happens to service and the people trying to start out in the industry? That is the other part that we don't generally tend to think about. The idea of someone starting out and selling life insurance for a living will be pretty hard, particularly the first day on the job. For people that have never done it before it will be hard to sell advice. After the training and receiving other necessary qualifications, making a go of it in the industry I think will definitely have some negative effects on the industry.
ID: The term commission seems to be very tainted today. What are your thoughts?
KG: At the end of the day we're all consumers, we all pay commissions. It may not be called a commission. It may be called a fee. Whatever they want to call it, it's still a cost.
You pay commissions on cars, houses, food, whatever it may be. It's due to the fact that it's our industry that it has got a bad connotation. Because a very small handful of people in the sector have done the wrong thing when it comes to commissions, everybody has been painted with the same brush, which is unfair but the way society works.
BY: If you compare it to other industries such as the auto industry, someone might spend $30,000 on a used car, but they get no sort of statement of advice around the car being fit for their purpose or the condition it is in. But I tend to think the implications are well understood by our industry. I think one of the challenges is there are probably different strategic outcomes and clearly organisations with large tied distribution networks have a greater opportunity to prosper further under a non-commission regime than those who distributed and that they do.
MB: I think the danger is we take a one-size-fits-all approach. So what should apply for a wealth accumulation business should apply to life insurance because they're sort of done out of the same shop, so to speak. We have a different approach with general insurance and a different approach again with consumer credit insurance and health insurance, but if anything, life insurance is more like them, not more like accumulation products, with our distribution tending to be very different as well. To create this one-size-fits-all approach where all commissions should be disclosed really stuck insurance into the investment space, but that investment space was starting to cause issues and that is where most of the conflicts have been with thing like shelf space fees and other issues with platforms. I think they're now starting to realise in the industry that these are two different issues that they are trying to address and that is why it needs a different approach, because we'd hate to think we had to go down this road of one-size-fits-all just because it's a wealth business. They're not talking about general insurances or health insurance or consumer credit insurance and I think we should be more aligned with those industries.
ID: What are the greatest challenges you expect to face over the next 12 months?
SR: I think trauma's going to be a real focus for us as an industry and I think the profitability of trauma is going to be challenging. I think there will be ongoing government reviews, whether or not they've been about definitions of total and permanent disablement or whether they be about commissions, all those things that are going around. It's a very noisy part of the world at this particular moment. And probably one of the other challenges I see is that they're, certainly in terms of quality financial advice, you've now got the direct market coming in. There's a very heavy focus on that and we have to figure out what that means for us and our industry and to those with very large online networks as this represents a shift in the distribution base in terms of what has been the traditional market. We've really had the independent financial advice channel, we've had the bank channel and now the direct channel is really starting to make an impact, and we as an organisation are challenging ourselves on how we move within that distribution network.
MB: I think there'll be a lot of change happening in the adviser space and particularly around some of the proposed changes that will be coming out of the various reviews. There could be a slight shift from retail to more wholesale businesses as well, so how we do structure things, there are some big opportunities, but all positive I think.
KG: I think product is not the battlefield anymore. It used to be. Advice has now become the driver, and that is going to be the main battlefield. So I think the challenge for all manufacturers is how we actually support advisers in helping them with their value proposition, because what they're offering is also our value proposition as well. I think service is going to come back into the fold. A lot of the IT developments that have happened when we first started conversations have also come a long way and raised the bar in making things faster and easier, so more professional. With that in mind, customer loyalty is another area that we have to focus on as well, like whether some of the things that have been put into place such as helpline and wellbeing.
RH: There are some key drivers around that long-term affordability message, but also making sure that from a pricing perspective we do have sustainability around the products that we take to market, ensuring we can continue to deliver those at an affordable price for the client.
BY: Obviously, as everyone has said, the uncertainty around pending regulations continues to be a sort of a threat sitting in the background. The ever-increasing cost of compliance in our industry just makes it harder and harder to provide the service to the customer at a price they're actually willing to pay. So I think as we've probably discussed many times before, we've sort of got to that point where there's almost too much regulation in it - we're providing a barrier to being able to sell the product. So that's an ongoing challenge.
Sustainability is also an important one. I'm a bit worried in recent months we've started to see pockets of irrational pricing coming on the back of a great year of growth last year, and that's something we need to be very wary of, because there's no point continuously catching prices on the back of good years and having to put them up later. The different distribution segments are becoming closer and closer all the time, the advice segments, the direct segments, and what I s
