Life choices on platforms

Technology change is now driving the life insurance market in significant ways and applying for life insurance is easier than ever for advisers and their customers.

These changes have created the opportunity for retail platforms to provide greater choice in their life insurance offerings.

For the adviser, there are two different channels to choose from — retail and group/platform. For many advisers it is what they are used to. For those who now predominantly use platforms to manage their client’s investment and affairs in general, it is no surprise that the appeal of the platform as a vehicle for life insurance cannot be ignored.

Why writing life insurance via a platform makes sense

Getting life insurance through a platform may not suit all situations or all advisers and their clients, but there are many instances where it makes a lot of sense. The platform may offer solutions for all life insurance planning needs, with the added advantage of using a superannuation ownership structure created by the changes to the taxation of benefits.

Insurance through a platform is generally offered together with super — a growing asset, which enables deduction of premiums directly from the super account and eliminates the requirement to manage the deduction of premiums from other accounts.

Premiums can also be funded from super using contributions to the fund or via salary sacrifice arrangements using pre-tax money.

In the retail space for both standalone and on-platform offerings, we are also seeing the introduction of online application systems, online workflow management and other tools that allow an adviser to quickly see where any life insurance application is at, and enhanced support mechanisms for advisers.

We are also increasingly seeing a convergence in the products written on the platform compared to their retail standalone equivalents. These include self-owned policies, flexible commission options and the development of enhanced product definitions.

Lack of insurance choice on retail platforms

Surprisingly, the last few years have not seen the large shift from retail standalone life insurance products to life insurance sold through retail platforms that many expected.

The strong development of new life insurance technology outside of platforms as well as other mechanisms to make it easier for advisers is one reason. Another has been the lack of insurance choice for advisers within most platforms in today’s market.

On the investment side, most platforms have an enormous number of investment options now available from a wide range of investment managers. What’s more, manager of manager options allow both optimisations across investment assets and diversification of investment manager risk. All platforms offer both in-house (default) investment options as well as a significant number of alternative providers. You simply do not see the same thing happening for life insurance.

Some platforms offer an extremely competitive premium rate but also a cut-down service model and/or a simplified product offering. This might be appropriate for some customers, but not for all.

The reality is different insurers have different strengths and their offers can appeal to different subsets of the Australian population. Advisers will tell you that insurers vary in a number of ways, with service in particular the predominant criteria used to select different providers.

For an adviser who finds their insurance is declined through their platform, they are left with no alternative than to look outside for alternative arrangements. By providing genuine choice of both insurance product and provider, the platform can offer real benefits to its supporting advisers as well as its clients.

At present, the core problem is that an adviser wants to find the most appropriate investment and risk solution for their client but the default insurance option within their preferred platform does not always guarantee the most appropriate investment and risk solution.

Can platforms readily offer choice?

In short, yes. In the past 10 years a few have tried to provide a genuine choice of insurers within master trusts but these initiatives have failed to get off the ground. However, many of the basics have changed since then, including technology advances and greater transparency in insurer processes.

The most important thing is for advisers and dealer groups to demand it. Many people I speak to in the market do see a benefit in choice. However, customer demand will ultimately drive this development, much as it did on the investment side a few years ago.

Platform insurance applications need to become completely electronic for efficiency and ease of implementation.

Insurers will need to ensure their processes are efficient and transparent and need to have systems in place to interface cleanly with the various platforms.

Platforms, for their part, will need to facilitate choice by allowing standardised processes that keep integration costs low for insurers. Ultimately, insurers will look at this equation and evaluate any costs of integration with the likely additional volumes they might achieve.

I see none of these items as major impediments. I am sure all of these can be easily resolved if any platform has the appetite to do so.

I have little doubt that ‘choice of insurer’ will be offered by one platform soon. I look forward to that happening.

Andrew Boldeman is the head of Group Life at TOWER Australia.