Changing Tower for the better

Jim Minto reflects on the recent delisting of Tower Australia, and what it will mean for the company.

There has been and will continue to be a lot of change in the life insurance industry and, while I prefer to look ahead positively, I shall take this opportunity for some constructive reflection before considering the future.

TOWER Australia continues to strive to be Australia’s leading life insurance company in terms of business partner service, customer service, products, cost-efficiency and technological leadership.

However, the company is about to change in many respects. 

Formerly Australia’s only specialist life insurance company listed on the Australian Securities Exchange, TOWER Australia has now delisted and is 100 per cent owned by Dai-ichi Life of Japan.

Among the interesting historical aspects surrounding the changes in ownership TOWER Australia and its predecessor companies have had strong offshore ownership connections and the company, its advisers and customers have all generally benefited from these.

Our time on the ASX was fairly brief. We listed at a value of approximately $500 million in November 2006; this just-completed purchase by Dai-ichi Life saw the business valued at approximately $1.7 billion – not a bad result for shareholders.

During this time, TOWER recorded significant growth in the Australian marketplace with its footprint in the retail life insurance space, through the independent adviser channel, now appreciably bigger than in 2006.

The ownership structure of the company also changed. Dai-ichi Life became involved in 2008 when it bought the 29.7 per cent shareholding owned by Guinness Peat Group (GPG).

The partnership, drawing together the strength of TOWER Australia’s performance and the power of Dai-ichi Life, has been recognised by various external businesses.

For advisers, the partnership brings built-in benefits. Dai-ichi Life itself is a life insurer with noteworthy historical origins and it is advantageous for TOWER Australia to be owned by an organisation that really understands life insurance culturally and wishes to make a positive contribution as a life insurer in the Australian market.

Dai-ichi Life is a leading life insurer in Japan and a top-10 life insurer, globally as measured by premiums in force.

TOWER Australia, its business partners and customers benefit significantly by being part of the Dai-ichi Life Group.

Two organisations with tremendous longevity and history have linked with a commitment to leadership in the Australian life market. 

Dai-ichi Life wants TOWER Australia to continue its drive under the strategy already in place.

I would never underestimate the importance of the life insurance cultural alignment, since it is so different to other financial services.

Having a 100 per cent shareholder that deeply understands its radical difference from banking and superannuation is of tremendous value to TOWER as we look to the future. 

Another positive change is that we are about to become TAL. TOWER Australia needed to change its name from TOWER by November 2006, as the name was owned by TOWER Limited in New Zealand. 

I am pleased about the change. TAL was our ASX ticker for the duration of our listing and many people, advisers, customers and staff, have called the company TAL over the years.

Throughout the financial services industry we see acronyms, though in the long-term we want TAL to be much more than an acronym.

We want it to be a name that represents leadership in life insurance for the benefit of Australians.

The TAL name will be phased in during the remainder of 2011.

However, the broader industry change is the Future of Financial Advice (FOFA). Government-driven reviews around advice and superannuation have been continuing for well over two years now, and it will be even longer before they are fully implemented.

The most controversial of these for the life industry are the FOFA proposals that have already been announced and for which legislation is proposed later this year.

Following the spectacular Storm and Westpoint-type failures in particular, there was always going to be some proposed change and the collective financial services industry has been attempting to mitigate any negative elements of these changes.

These changes may be of great value to many people whose advice needs do not run to large disclosure documents and the related costs.

I have been lobbying for several years for Australians to be able to access advice more easily and welcome the championing of the value of advice. 

For advisers, too, there are benefits. They will be able to address the less complex needs of many in the community without the need for the detailed advice requirements of the past.

I am sure that many avoided getting financial advice because it was too complex.

This can now change with the introduction of the ‘scaled’ model.

Commissions on life insurance and superannuation have been topical and the financial services industry moved to remove commissions in superannuation through its charter, a very good move.

The proposal to ban life commissions in superannuation created an immediate outcry. 

My view is that the industry should be able to resolve the means of offering life insurance through superannuation using other remuneration models and we need to work on this as soon as possible.

For example, we could have a fee structure for life insurance through superannuation, subject to approval of the fund trustee.

The fee would be agreed by the client, paid by the life company to the adviser and added to the base premium. 

Questions such as who is responsible for the fee if the policy lapses before the fee is fully repaid need to be resolved but models like this are possible, even if the one I have suggested as an option is not preferred.

I shall leave it to the wider industry to thrash out all options and find a workable solution.

I have read comments that because of the commission ban advisers may choose not to write life insurance in superannuation, but divert client business outside superannuation.

This suggestion really disappoints me, since it is simply not true of the vast majority of advisers.

Advisers generally have supported the “best interests” proposal because they have always seen this as their proper role and approach.

They would not generally divert business just to make sure they get paid a commission. 

Removal of tax benefits on life insurance and introduction of Financial Services Reform (FSR) are just two examples of major changes to which advisers have had to adapt.

The industry will adapt to this life commissions in superannuation issue and advisers will continue to represent the interests of their clients strongly.

I am proud of the tremendous value life insurance delivers to Australians and the role played by advice and I remain very positive about the future for our wider industry.

After all, change can be good if it is managed in the right way for the best outcome.

Jim Minto is the managing director of TOWER Australia.