Life insurance reforms create new opportunities
How do you keep a clear picture when the lines of life insurance are blurred? Damien Mu predicts that the distinctions that life insurance companies draw between group and retail insurance will increasingly lose relevance with the introduction of the proposed regulatory reforms.
However, recent CoreData Life Market research has shown up to one third of financial advisers are writing individual retail policies through master trusts and wraps.
It is our view that this trend will only accelerate with the proposed regulatory reforms, and as a result the distinction that life insurance companies draw between group and retail insurance will increasingly lose relevance when financial advisers are discussing insurance options with their customers.
The proposed reforms allow commissions on individual insurance through super as an appropriate charging mechanism and one likely consequence of this will be for more and more trustees making retail risk products available through their platforms.
So what exactly does the blurring of these lines mean for financial advisers and dealer groups wanting to stay ahead?
Category consolidation may equate to increased competition
The consolidation of traditional life insurance categories will trigger increased competition and presents opportunities for financial advisers to grow their businesses.
We are already seeing group insurance offers coming to market which are targeted at financial advisers specialising in the SMSF sector, and many trustees have taken the step of offering life companies retail insurance products on their master trusts and wraps.
This increase in competition may also lead to complex servicing models – eg, a client that is insured through a group insurance contract will have a different experience from the client that purchases a retail insurance product through the platform.
Ultimately, differing service levels will mean that financial advisers will have to navigate through this complexity, and as a result this complexity will lead to higher costs on the adviser’s business.
As financial advisers increasingly use master trusts and wraps for their clients’ insurance, it will be important for life companies to deliver consistent and high levels of service, irrespective of whether the product is structured as retail or group.
Life insurers need to look at the market and the customer experience as one integrated model rather than the current group/retail split.
Pricing and service
Pricing is also a key component to consider.
While the retail and group market already provides a number of products offering good value to clients, retail products tend to be more feature rich, whilst group products generally provide less features at lower prices.
As the offers begin to merge, it is important for life insurance companies to continue to develop offers that target different needs and prices.
If the blurring of the lines leads to a single product with one premium series, then the industry would have failed to take into account different customer needs and segments.
Technology is the enabler of life insurance category consolidation
We are already seeing innovations from the retail market find their way into group offerings, particularly in the technology space as electronic applications and e-claims facilities gain wider usage and acceptance.
Technology is essential to help the industry improve efficiency and reduce costs.
Life insurers need to respond to financial adviser demands for better administrative processes, more support in coping with a complex business environment and assisting advisers to promote the value of their service.
Through our group funds, we have been able to achieve auto-acceptance rates of 50 per cent, demonstrating the importance in technology drawing improved service levels.
Looking ahead
There are many positive aspects and opportunities for financial advisers in the increased blurring of the lines between group and retail insurance offers, but as an industry we need to find ways to deliver consistent levels of service that don’t increase the costs for the adviser and are easily understood by the end consumer.
Damien Mu is general manager for life insurance at AIA Australia.
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