The trouble with life insurers not keeping up with industry changes

With many in the insurance industry falling behind or struggling to keep up, Brett Yardley looks at some of the changes that have or are about to occur.

Depending on which calendar calculation you use, this year could see the end of the first decade of the 21st century or there could be another year to go.

Either way, it has been a period of dramatic change for the life insurance sector.

Unfortunately, some in the industry have either been left behind or are in danger of not catching up with all that has happened. In addition, the rate of change seems to have gathered pace and looks set to continue accelerating into the next 10-year period.

Let’s look at some of the changes that have or are about to occur.

The traditional retail life space changed very little in the 100 years of the 20th century.

There was the development of the critical illness product and all other products received regular upgrades.

Perhaps the most significant change was that many of the traditional life mutuals demutalised and, in the process, the distribution landscape changed dramatically.

Many would suggest this has helped expand the underinsurance gap as some of the traditional life insurance suppliers have switched their focus, and that of their advisers, to the wealth creation space.

For much of the past decade, life insurance has been overlooked by many.

Since the start of the decade we have also had the Financial Services Reform Act implemented and the role of the independent financial adviser change focus.

This is now all up for change again in the wake of a change of government. The Ripoll Report, the Cooper Inquiry and the Henry Review will all mean big changes in the decade ahead.

The past 10 years have also seen the growth of two other key planks of the life insurance sector — the direct channel and the group space.

I know many advisers are uncomfortable with the direct to consumer life insurance model. However, it has grown and become successful because it meets very simple and basic customer needs.

The direct channel is helping educate the market in a broad sense and to close the underinsurance gap and should be seen as complementing those advisers who sell life insurance, and not as a competitor.

As consumer needs evolve the need for advice on more complex insurance arrangements emerges.

The more consumers are educated as to the value of life insurance, the better for the industry and advisers.

The other big change of the past decade has been the growth of the group life insurance space.

More and more Australians are obtaining some level of protection through their superannuation, on platforms or through workplace schemes.

Again, this is helping to close the underinsurance gap.

For independent financial advisers and the life insurance industry generally, there are a couple of valuable lessons here.

The first is that the consumer is in charge. Consumers will need to be able to buy life insurance when they need it and in the form that they want. That is, simply and easily.

The second lesson is that these distribution channels are complementary and not in conflict.

As a person’s life stages change so do their life insurance needs, so a person introduced to the benefits of protection through a direct or group scheme will likely move into the retail advice life space at a different life stage.

For the retail life channel, the past decade has seen major changes and this is where there are winners and losers.

The biggest change has been technological. Consumers today want quick and easy answers to difficult questions.

They are technologically aware and more used to doing business in front of a computer screen.

Therefore, technological change in life insurance in the past 10 years has been dramatic and delivers big wins for both financial advisers and their clients.

For the life insurance market, it has meant big investment by the product providers in technology, but not all players have gone far or fast enough.

Those that have lagged behind are either paying top dollar to catch up — and then finding the game has moved on — or are in danger of being left behind altogether.

There has been a rush this year as life companies announce their new electronic underwriting and application processes.

As mentioned, for many that simply involves catching up. The risk in the next decade is that those looking back and trying to catch up will fall further behind while those that are looking forward will continue to move ahead.

The big winners in this are you and your clients. For your clients it means getting life insurance protection quickly and with reduced fuss.

Automatic online underwriting tools can significantly reduce the waiting time and the number of medicals required.

For the adviser, the reduced time for implementing coverage can mean major savings in terms of having less business walk away and getting paid that much more quickly.

The past decade has certainly been one of big change for the life insurance industry.

Once considered a staid and conservative business, it is now one of the most dynamic and fast moving.

The challenge for all is to recognise the next round of change and being there ahead of time to take full advantage.

Brett Yardley is head of offer strategy at Tower Australia.